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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
x☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2019
For the fiscal year ended December 31, 2017
☐
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________to ______________.
Commission
File Number
Exact name of registrant as

specified in its charter and principal
office address and telephone number
State of
Incorporation
I.R.S.
Employer
Identification No.
1-6364South Jersey Industries, Inc.New Jersey22-1901645
000-22211South Jersey Gas CoNew Jersey21-0398330

Address of principal executive officesCityStateZip CodeRegistrant's telephone number, including area code
South Jersey Industries, Inc.1 South Jersey PlazaFolsomNew Jersey08037(609)561-9000
South Jersey Gas Co1 South Jersey PlazaFolsomNew Jersey08037(609)561-9000

Securities registered pursuant to Section 12(b) of the Act:

South Jersey Industries, Inc.
Title of each classTrading Symbol(s)Name of exchange on which registeredSecurities registered pursuant to Section 12(b) of the Act:Securities registered pursuant to Section 12(g) of the Act:
1-6364
South Jersey Industries, Inc.
1 South Jersey Plaza
Folsom, NJ 08037
(609) 561-9000
New Jersey22-1901645New York Stock Exchange
Common Stock - $1.25 par value per share
SJINew York Stock Exchange
5.625% Junior Subordinated Notes due 2079SJIJNew York Stock Exchange
Corporate UnitsSJIUNew York Stock Exchange
South Jersey Gas Co
(
Title of each class)classNoneTrading Symbol(s)Name of exchange on which registered
000-22211None
South Jersey Gas Company
1 South Jersey Plaza
Folsom, NJ 08037
(609) 561-9000
N/A		New Jersey21-0398330N/ANoneNone



Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act: 
South Jersey Industries, Inc.: Yes x ☒No o
South Jersey Gas Company:Co: Yes o No x☒


Indicate by check mark if each registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Act: Yes o No x☒
 
Indicate by check mark whether each registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that each registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x ☒No o

Indicate by check mark whether each registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that each registrant was required to submit and post such files). Yes x ☒No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
South Jersey Industries, Inc.: o
South Jersey Gas Company: x

Indicate by check mark whether each registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.



South Jersey Industries, Inc.:
Large accelerated filer
☒Accelerated filer      ☐Non-accelerated filer    ☐
Smaller reporting company     ☐Emerging growth company     ☐
South Jersey Gas Co:
Large accelerated filer   x
☐
Accelerated filer      o
☐
Non-accelerated filero☒
Smaller reporting company     o
☐
Emerging growth company     o
☐
South Jersey Gas Company:
Large accelerated filer   o
Accelerated filer      o
Non-accelerated filer     x
Smaller reporting company      o
Emerging growth company      o
 
Indicate by check mark whether any of the registrants are a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o ☐ No x☒
 
South Jersey Industries, Inc. (common stock - $1.25 par value) - The aggregate market value of voting stock held by non-affiliates of the registrant as of June 30, 20172019 was $2,710,972,523.$3,116,326,472. As of February 15, 2018,2020, there were 79,595,31792,444,649 shares of the registrant's common stock outstanding. South Jersey Gas Company common stock ($2.50 par value) outstanding as of February 15, 20182020 was 2,339,139 shares. All of South Jersey Gas Company's outstanding shares of common stock are held by South Jersey Industries, Inc.
 
South Jersey Gas Company is aan indirect wholly-owned subsidiary of South Jersey Industries, Inc. and meets the conditions set forth in General Instruction I(1)(a) and (b) of Form 10-K; therefore, South Jersey Gas Company files this form with the reduced disclosure format.


Documents Incorporated by Reference:
In Part III of Form 10-K:  Portions of South Jersey Industries, Inc.'s definitive proxy statement for its 20182020 annual meeting of shareholders to be filed with the Securities and Exchange Commission are incorporated by reference into Part III of this Form 10-K.


Table of Contents
TABLE OF CONTENTS


Page No.
5
68
PART I
Item 1.
Business8
7
PART I
Item 1.
9
Item 1A.
13
Item 1B.
17
Item 2.
17
Item 3.
1718
Item 4.
18
Item 4A.
18
PART II
Item 5.
20
Item 6.
2221
Item 7.
2625
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
6059
Item 8.
6463
   South Jersey Industries, Inc.
64
65
66
68
70
   South Jersey Gas Company
72
73
74
76
78
79
79
8889
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9394
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101102
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Table of Contents
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137147
142152
144154
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161
163
145164
147169
Item 9.
149170
Item 9A.
149170
Item 9B.
149171
PART III
Item 10.
151173
Item 11.
151173
Item 12.
151173
Item 13.
151173
Item 14.
151173
PART IV
Item 15.
152174
157182
Financial Statement Schedules
159184






Table of Contents
GLOSSARY OF TERMS AND ABBREVIATIONS

ABOAccumulated Benefit Obligation
ACBACB Energy Partners, LLC
ACLEAC Landfill Energy, LLC
Acquisition
The Company's acquisition of Elizabethtown Gas Company and Elkton Gas Company effective July 1, 2018, from Pivotal Utility Holdings, Inc., a subsidiary of Southern Company Gas

AEPApplied Energy Partners, LLC
AFUDCAllowance for Funds During Construction
AIRPAccelerated Infrastructure Replacement Program
AMAAsset Management Agreement
AOCLAccumulated Other Comprehensive Loss
AROAsset Retirement Obligation
ASCAccounting Standards Codification
ASUAccounting Standards Update
BcfOne billion cubic feet
BCLEBC Landfill Energy, LLC
BGSSBasic Gas Supply Service
BGSS-PPeriodic Basic Gas Supply Service
BPABond Purchase Agreement
BPUNew Jersey Board of Public Utilities
CBACollective Bargaining Agreement
CEGRCompounded Earnings Annual Growth Rate
CIPConservation Incentive Program
CLEPClean Energy Program
CODMChief Operating Decision Maker
ColumbiaColumbia Gas Transmission, LLC
DCFDiscounted Cash Flow
DominionDominion Transmission, Inc.
DPADeferred Payment Arrangements
DRPDividend Reinvestment Plan
dtDecatherm
dts/dDecatherms per day
EDITExcess Deferred Income Taxes
EEPEnergy Efficiency Program
EETEnergy Efficiency Tracker
EGREarnings Growth Rate
ELKElkton Gas Company
EMIEnergy & Minerals, Inc.
EMPEnergy Master Plan
EnerConnexEnerConnex, LLC
EnergenicEnergenic US, LLC
EnergyMarkEnergyMark, LLC
EPSEarnings Per Share
ERIPEarly Retirement Incentive Program
ERISAEmployee Retirement Income Security Act of 1974
ESOPEmployee Stock Ownership Plan

Table of Contents
ETGElizabethtown Gas Company
FFahrenheit
FASBFinancial Accounting Standards Board
FERCFederal Energy Regulatory Commission
FSSFederal Supply Schedule
FTFirm Transportation
GAAPGenerally Accepted Accounting Principles for financial reporting in the United States
Gulf SouthGulf South Pipeline
IAMInternational Association of Machinists and Aerospace Workers
IBEWInternational Brotherhood of Electrical Workers
IIPInfrastructure Investment Programs
LFGTELandfill Gas-to-Energy
LIBORLondon Interbank Offer Rate
LMPLocational Marginal Price
LNGLiquefied Natural Gas
MarinaMarina Energy, LLC
McfOne thousand cubic feet
MCSMCS Energy Partners, LLC
MDQMaximum Daily Quantities
MDWQMaximum Daily Withdrawal Quantity
MidstreamSJI Midstream, LLC
MillenniumMillennium Account Services, LLC
MPSCMaryland Public Service Commission
MMdtsOne million decatherms
MMmWhOne million megawatt hours
MorieThe Morie Company, Inc.
MTFMarina Thermal Facility
MTMMark-to-market
MTNMedium Term Notes
MWMegawatts
MWhMegawatt-hours
National FuelNational Fuel Gas Supply Corporation
NAVNet Asset Value
NBSNBS Energy Partners, LLC
Non-GAAPFinancial measures that are not prepared in accordance with U.S. GAAP
NPANote Purchase Agreement
NJCEPNew Jersey Clean Energy Program
NJDEPNew Jersey Department of Environmental Protection
NJEDANew Jersey Economic Development Authority
NOLNet Operating Loss
NYMEXNew York Mercantile Exchange
OPEBOther Postretirement Benefits
OSMCOn-System Margin Sharing Credit
OSSOff-System Sales
PBOProjected Benefit Obligation
PennEastPennEast Pipeline, LLC, which is planning to construct an approximately 118-mile natural gas pipeline that will extend from Northeastern Pennsylvania into New Jersey

Table of Contents
PGAPurchase Gas Adjustment Clause
Potato CreekPotato Creek, LLC
RACRemediation Adjustment Clause
RAMRate Adjustment Mechanism
RNARevenue Normalization Adjustment Clause
ROEReturn on Equity
SABStaff Accounting Bulletin
Savings PlanEmployees' Retirement Savings Plan
SBCSocietal Benefits Clause
SBSSBS Energy Partners, LLC
SCLESC Landfill Energy, LLC
SECSecurities and Exchange Commission
SERPSupplemental Executive Retirement Plan
SHARPStorm Hardening and Reliability Program
SJESouth Jersey Energy Company
SJEISJI Energy Investments, LLC
SJESSouth Jersey Energy Solutions, LLC
SJESPSouth Jersey Energy Service Plus, LLC
SJEXSouth Jersey Exploration, LLC
SJFSouth Jersey Fuel, Inc.
SJGSouth Jersey Gas Company
SJISouth Jersey Industries, Inc., or the Company
SJIUSJI Utilities, Inc.
SJRGSouth Jersey Resources Group, LLC
SOASociety of Actuaries
SRECsSolar Renewable Energy Credits
SXLESX Landfill Energy, LLC
Tax ReformTax Cuts and Jobs Act which was enacted into law on December 22, 2017
TennesseeTennessee Gas Pipeline Company, L.L.C.
TetcoTexas Eastern Transmission Corp
TICTransportation Initiation Clause
TranscoTranscontinental Gas Pipe Line Company, LLC
TSATransition Services Agreement
TSRTotal Shareholder Return
USFStatewide Universal Service Fund
UtilitiesRepresents SJI's three utility businesses: SJG, ETG, and ELK
UWUAUnited Workers Union of America
VIEVariable Interest Entities
WNCWeather Normalization Clause





Table of Contents
INTRODUCTION


FILING FORMATFiling Format


This Annual Report on Form 10-K is a combined report being filed separately by two registrants: South Jersey Industries, Inc. (SJI) and South Jersey Gas Company (SJG). Information relating to SJI or any of its subsidiaries, other than SJG, is filed by SJI on its own behalf. SJG is only responsible for information about itself.


Except where the content clearly indicates otherwise, any reference in the report to "SJI," "the Company," "we," "us" or "our" is to SJI and all of its subsidiaries, including SJG, which is aan indirect wholly-owned subsidiary of SJI.


Management's Discussion and Analysis of Financial Condition and Results of Operations (Management's Discussion) included under Item 7 is divided into two major sections: SJI and SJG. Financial information in this Annual Report on Form 10-K included in Item 8 includes separate financial statements (i.e., statements of income, statements of comprehensive income, statements of cash flows, balance sheets, and statements of changes in equity and comprehensive income) for SJI and SJG. The Notes to Consolidated Financial Statements are presented on a combined basis for both SJI and SJG.


Forward Looking Statements
 
Certain statements contained in this Annual Report on Form 10-K may qualify as “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements in this Report other than statements of historical fact, including statements regarding future results of operations or financial position, expected sources of incremental margin, strategy, financing needs, future capital expenditures and the outcome or effect of ongoing litigation, should be considered forward-looking statements made in good faith by South Jersey Industries (SJI or the Company) and South Jersey Gas Company (SJG), as applicable, and are intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. When used in this Report, or any other documents, or oral presentations, words such as “anticipate,” “believe,” "estimate," “expect,” “forecast,” “goal,” “intend,” “objective,” “plan,” “project,” “seek,” “strategy,” "target," "will" and similar expressions are intended to identify forward-looking statements. These forward-looking statements are based on the beliefs and assumptions of management at the time that these statements were made and are inherently uncertain. Such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the forward-looking statements. These risks and uncertainties include, but are not limited to the risks set forth under “Risk Factors” in Part I, Item 1A of this Report and elsewhere throughout this Report. These cautionary statements should not be construed by you to be exhaustive and they are made only as of the date of this Report. While the Company believes these forward-looking statements to be reasonable, there can be no assurance that they will approximate actual experience or that the expectations derived from them will be realized. Further, neither SJI nor SJG undertakes no obligation to update or revise any of its forward-looking statements whether as a result of new information, future events or otherwise.



Available Information
 
Information regarding SJI and SJG can be found at SJI's website, www.sjindustries.com. We make available free of charge on or through our website SJI's Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (SEC).SEC. The SEC maintains a website that contains these reports at http://www.sec.gov. Also, copies of SJI's annual report will be made available, free of charge, upon written request. The content on any website referred to in this filing is not incorporated by reference into this Report unless expressly noted otherwise.
 


Units of Measurement
For Natural Gas:
1 Bcf = One billion cubic feet
1dt = One decatherm
1 MMdts = One million decatherms
dts/d = Decatherms per day
MDWQ = Maximum daily withdrawal quantity
For Electric:
1 MMmwh = One million megawatt hours
1 mwh = One megawatt hour



South Jersey Industries, Inc.
Part I


PART I


Item 1. Business
Description of Business


South Jersey Industries, Inc. (SJI or the Company), a New Jersey corporation, was formed in 1969 for the purpose of owning and holding all of the outstanding common stock of South Jersey Gas Company, a public utility, and acquiring and developing non-utility lines of business.
 
SJI currently provides a variety of energy-related products and services, primarily through the following wholly-owned subsidiaries:

South Jersey Gas Company (SJG)•SJIU is a holding company that owns SJG, ETG and ELK.

▪SJG is a regulated natural gas utility. SJGutility which distributes natural gas in the seven southernmost counties of New Jersey.

•ETG is a regulated natural gas utility which distributes natural gas in seven counties in northern and central New Jersey.
South Jersey Energy•ELK is a regulated natural gas utility which distributes natural gas in northern Maryland. In December 2019, the Company (SJE)announced it had entered into an agreement to sell ELK to a third-party buyer, pending MPSC approval (see Note 1 to the consolidated financial statements).

•SJE acquires and markets natural gas and electricity to retail end users and provides total energy management services to commercial, industrial and residential customers.users. In November 2018, the Company sold SJE's retail gas business.


South Jersey Resources Group, LLC (SJRG)•SJRG markets natural gas storage, commodity and transportation assets along with fuel management services on a wholesale basis in the mid-Atlantic, Appalachian and southern states.


South Jersey Exploration, LLC (SJEX)•SJEX owns oil, gas and mineral rights in the Marcellus Shale region of Pennsylvania.


•Marina Energy, LLC (Marina) develops and operates on-site energy-related projects. It currently operatesIncluded in Marina is MTF, which, in February 2020, was sold to a third party buyer (see "Agreement to Sell MTF & ACB" below). Also included in Marina are three solar projects in New Jersey, Maryland, Massachusetts and Vermont.which are held for sale. The significant wholly-owned subsidiaries of Marina include:


•ACB, Energy Partners, LLC (ACB)which owns and operates a natural gas fueled combined heating, cooling and power facility located in Atlantic City, New Jersey. ACB is included in the sale to a third party buyer (see Note 1 to the consolidated financial statements).


AC Landfill Energy, LLC (ACLE), BC Landfill Energy, LLC (BCLE), SC Landfill Energy, LLC (SCLE)•ACLE, BCLE, SCLE and SX Landfill Energy, LLC (SXLE) ownSXLE, which owns and operateoperates landfill gas-to-energy production facilities in Atlantic, Burlington, Salem and Sussex Counties in New Jersey.


•MCS, Energy Partners, LLC (MCS), NBS Energy Partners, LLC (NBS) and SBS, Energy Partners, LLC (SBS) ownwhich owned and operateoperated solar-generation sites located in New Jersey. These entities were sold in October 2018.


South Jersey Energy Service Plus, LLC (SJESP) serviced residential and small commercial HVAC systems, installed small commercial HVAC systems, provided plumbing services and serviced appliances under warranty via a subcontractor arrangement as well as on a time and materials basis. On September 1, 2017, •SJESP sold certain assets of its residential and small commercial HVAC and plumbing business to a third party. SJESP will receivereceives commissions paid on service contracts from thea third party on a go forward basis. This transaction did not have a material impact on the consolidated financial statements.party.


SJI •Midstream LLC (Midstream) invests in infrastructure and other midstream projects, including PennEast. See Note 3 to the consolidated financial statements.

•SJEI provides energy procurement and cost reduction services. AEP, an aggregator, broker and consultant in the retail energy markets, is a current project to build an approximately 118-mile natural gas pipelinewholly-owned subsidiary of SJEI after completion of the AEP acquisition in Pennsylvania and New Jersey.August 2019.
 
In October 2017,Acquisitions:

On July 1, 2018, SJI, announced that it had entered into agreements to acquirethrough its wholly-owned subsidiary SJIU, acquired the assets of Elizabethtown GasETG and Elkton GasELK from Pivotal Utility Holdings, Inc., a subsidiary of Southern Company Gas. SJI is acquiringGas (collectively, the assets of both companies"Acquisition"), for total consideration of $1.7 billion. The$1.72 billion after the settlement of working capital.

9
South Jersey Industries, Inc.
Part I
On August 31, 2019, SJI, through its wholly-owned subsidiary SJEI, completed its acquisition of AEP for $4.0 million in total consideration.

See Note 20 to the consolidated financial statements.

Divestitures:

In December 2019, the Company announced it had entered into an agreement to sell MTF and ACB to a third-party buyer for an initial sales price of $100.0 million, which includes working capital. This sale closed on February 18, 2020 for a final sales price of $97.0 million, with the initial sales price being reduced by the amount of cash flows generated by MTF and ACB from October 1, 2019 through the date of closing (see Note 22 to the consolidated financial statements).

In December 2019, the Company announced it had entered into an agreement to sell ELK to a third-party buyer for approximately $15.0 million, less any indebtedness at the time of closing, pending MPSC approval. This transaction is expected to close in mid-2018,the middle of 2020.

On June 27, 2018, the Company, through its wholly-owned subsidiary, Marina, entered into a series of agreements whereby Marina agreed to sell its portfolio of solar energy assets (the “Transaction”) to a third-party buyer. As part of the Transaction, Marina agreed to sell its distributed solar energy projects across New Jersey, Maryland, Massachusetts and Vermont (the “Projects”), along with the assets comprising the Projects. Also in connection with the Transaction, Marina is subject to approvalsleasing back from the buyer certain of the Projects that have not yet passed the fifth anniversary of their placed-in-service dates for U.S. federal income tax purposes. The leaseback will run from the date each such project was acquired by the New Jersey Boardbuyer until the later of Public Utilities (BPU)the first anniversary of the applicable acquisition date and the Maryland Public Service Commission (PSC),fifth anniversary of the applicable placed-in-service date of the project. In July 2018, as part of the Transaction, Marina received a cash payment of $62.5 million for the sale of certain SRECs. During the fourth quarter of 2018, the Company closed on the majority of these Projects, including the wholly-owned subsidiaries MCS, NBS and SBS, with limited approvals also required fromeach project sold having met all conditions to satisfy closing. Total consideration received in the Federal Energy Regulatory Commission (FERC) andfourth quarter 2018 related to these sales was $228.1 million. During 2019, seven Projects were sold for total consideration of $24.3 million. The Company has three projects that are not part of the Federal Communications Commission (FCC), as well as certain anti-trust filings and approvals.Transaction but are expected to be sold in 2020. The value of these unsold assets is $27.2 million.


On November 30, 2018, SJI sold the retail gas business of SJE for total consideration of $15.0 million. As a result, SJE no longer acquires, transports or markets natural gas for retail markets.

See Note 1 to the consolidated financial statements.

Additional Information on the nature of SJI's and SJG's businesses can be found in “Management's Discussion and Analysis of Financial Condition and Results of Operations,” under Item 7 of this Report.
 
South Jersey Industries, Inc.
Part I

Financial Information About Reportable Segments
Information regarding Reportable Segments is incorporated by reference to Note 8 of the consolidated financial statements included under Item 8 of this Report.
Sources and Availability of Raw Materials

South Jersey Gas CompanyThe Utilities:

Transportation and Storage Agreements

During 2019, SJG, ETG and ELK purchased and had delivered natural gas distribution of 48.5 MMdts, 33.9 MMdts and 0.7 MMdts, respectively. These deliveries were for on-system and off-system customers and for injections into storage. SJG's average cost per dt of natural gas purchased and delivered in 2019, 2018 and 2017, including demand charges, was $4.17, $5.20, and $3.75, respectively. ETG's and ELK's average cost per dt of natural gas purchased and delivered in 2019 was $4.33 and $5.95, respectively. The average cost per dt of natural gas purchased and delivered for ETG and ELK for the period July 1 - December 31, 2018 was $4.71 and $6.43, respectively.

SJG has direct connections to the interstate pipeline systems of both Transcontinental Gas Pipe Line Company, LLC (Transco)Transco and Columbia Gas Transmission, LLC (Columbia). During 2017, SJG purchased and had delivered approximately 55.4 MMdts of natural gas for distribution to both on-system and off-system customers and for injections into storage. Of this total, 31.9 MMdts were transported on the Transco pipeline system while 23.5 MMdts were transported on the Columbia pipeline system. Also during 2017, third-party suppliers delivered 27.4 MMdts to SJG's system on behalf of end use customers behind SJG's city gate stations.Columbia. SJG secures other long-term services from Dominion, Transmission, Inc. (Dominion), a pipeline upstream of the Transco and Columbia systems. Services provided by Dominion are utilized to deliver gas into either the Transco or Columbia systems for ultimate delivery to SJG. In addition, effective December 1, 2017,


10
South Jersey Industries, Inc.
Part I
ETG has direct connections to the interstate pipeline systems of Transco, Columbia, Tetco and Tennessee. ETG secures other long-term services from several inter-state pipelines, Dominion, National Fuel and Gulf South that are not directly connected to ETG and are upstream of the Transco and Tetco systems. Services provided by Dominion are utilized to deliver gas into either the Transco or Tetco systems for ultimate delivery to ETG. Services provided by National Fuel and Gulf South are utilized to deliver gas into the Transco system for ultimate delivery to ETG. ETG also secures third-party storage services from Stagecoach Gas Services and Stagecoach Pipeline & Storage Company.

Total transportation under contract at SJG initiatedand ETG are 421,980 dts/d and 248,523 dts/d, respectively. These contracts have terms with various ending dates, ranging from October 31, 2022 through November 30, 2034. The Company's intentions are to renew or extend these service agreements before they expire.

Total storage capacity under contract at SJG and ETG is 8.9 MMdts and 13.2 MMdts, respectively, with a newtotal MDWQ of 170,298 dts and 225,343 dts, respectively. These contracts have terms with various ending dates, ranging from March 31, 2023 through September 30, 2029. The Company's intentions are to renew or extend these service agreements before they expire.

ELK has direct connections to the interstate pipeline systems of Eastern Shore Natural Gas, along with firm transportation serviceagreements with Tennessee Gas Pipeline Company, L.L.C. (Tennessee). Gas transported by Tennessee will be delivered to theTransco and Columbia system for subsequent delivery to SJG. Gas. The activities of ELK utility operations are not material.

Services provided by all of the above-mentioned pipelines are subject to the jurisdiction of the Federal Energy Regulatory Commission (FERC).  Unless otherwise indicated, our intentions are to renew or extend these service agreements before they expire.FERC.  

Transco:Gas Supplies

Transco is SJG's largest supplier of long-term gas transmission services which includes both year-round and seasonal firm transportation (FT) service arrangements. When combined, these FT services enable SJG to purchase gas from third parties and have delivered to its city gate stations by Transco a total of 297,958 dts per day (dts/d). Of this total, 133,917 dts/d is long-haul FT (where gas can be transported from the production areas of the Southwest to the market areas of the Northeast) while 164,041 dts/d is market area FT. The terms of SJG's year-round agreements with Transco extend for various periods through 2025. Certain of these agreements are currently operating under their respective evergreen provisions.
Of the 297,958 dts/d of Transco services mentioned above, SJG has released a total of 10,000 dts/d of its long-haul and 20,000 dts/d of its market area FT service. These releases were made in associationtwo separate AMA's with SJG's Conservation Incentive Program (CIP) discussed further under Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations."  In addition, SJG released a total of 35,000 dts/d of its long-haul FT and 5,000 dts/d of its market area FT as part of Asset Management Agreements (AMA). The AMA-related releases are discussed below under “Gas Supplies.”

SJG currently has six long-term gas storage service agreements with Transcomarketers that when combined, are capable of storing approximately 5.0 MMdts. Through these agreements, SJG can inject gas into market and production area storages during periods of low demand and extract gas at a Maximum Daily Withdrawal Quantity (MDWQ) of up to 107,407 dts during periods of high demand. The longest term of these storage service agreements extendsextend through March 31, 2023.
Dominion:

SJG subscribes to a firm storage service from Dominion, under its Rate Schedule GSS.  This storage has an MDWQ of 10,000 dts during the period between November 16 and March 31 of each winter season, with an associated total storage capacity of 423,000 dts.  Gas withdrawn from Dominion GSS storage is delivered through both the Dominion and Transco (Leidy Line) pipeline systems for delivery to SJG service territory.  The primary term of this agreement extends through March 31, 2019.
Columbia:
SJG subscribes to four firm transportation agreements with Columbia which currently provide for an aggregate of 124,022 dts/d. The term of 9,000 dts/d of this capacity extends through October 31, 2022; the term of 45,022 dts/d extends through October 31, 2019; and the remaining 70,000 dts/d extends through October 31, 2030.
South Jersey Industries, Inc.
Part I


SJG also subscribes to a firm storage service with Columbia under its Rate Schedule Federal Supply Schedule (FSS) along with an associated firm transportation service under Rate Schedule SST, each of which extends through October 31, 2019. SJG has a total FSS MDWQ of 52,891 dts and a related 3,473,022 dts of storage capacity. SJG released to SJRG 19,029 dts/d of its FSS MDWQ along with 1,249,485 dts of its FSS storage capacity. Additionally, SJG released to SJRG 19,029 dts/d of its associated Columbia SST transportation service. Both releases made by SJG were in connection with its CIP and extend through September 30, 2018.
Gas Supplies

During 2017, SJG entered into an AMA with a gas marketer which extends through March 31, 2018. Under this agreement,2020. SJG released to the marketermarketers its firm transportation rights, equal to 30,000 dts/d of transportation capacity on Transco. The marketer managesand in return the marketers manage this capacity and providesprovide SJG with up to 30,000 dts/d of firm deliverability each day through March 31, 2018.day. The marketer's intent wasintents are to optimize the capacity released to SJG under this AMAthese AMA's and pay SJG an asset management fee.


SJG has committed to a purchase of a minimum of 15,000 dts/d and up to 70,000 dts/d, from a supplier for a term of ten years at index-based prices. Also, during 2017,in 2019 SJG entered into an additional AMA with a separate gas marketer which extends through October 31, 2018. Under this agreement, SJG has released to the marketer 10,000 dts/d of its firm transportation capacity rights. As part of this transition the total quantity is split into two arrangements of 5,000 dts/d each under a separate Transco contract. The marketer manages its capacity and provides SJG with up to 10,000 dts/d of firm deliverability everyday through March 31, 2018 in one case and through October 31, 2018 as to the other. The marketers will seek to optimize the capacity released to it under this AMA and pay SJG an asset management fee.

SJG has a long-term gas2-year purchase agreement with a producer delivering 5,000 dts/day at SJG’s Leidy Line for certified responsible gas producer, the primary term offrom November 1, 2019 through October 31, 2021.

On July 1, 2018, ETG and ELK entered into an AMA with SJRG which extends through OctoberMarch 31, 2019. The maximum daily quantities (MDQ) available for purchase under2022. Under this agreement initially start at 6,250 dts/dETG and will increaseELK released to an MDQSJRG and/or designated SJRG as agent for all firm transportation and storage contracts. SJRG is obligated to provide natural gas supply to meet demand requirements and optimize ETG’s and ELK's portfolio of 25,000 dts/d. Gas purchased from this producer will be sourced in the Appalachian supply areasnatural gas transportation and delivered into the Columbia pipeline system for delivery to SJG.storage contracts. SJRG pays a fixed fee and shares net margin generated through portfolio optimization.

SJG also has a long-term gas purchase agreement with an additional gas producer, with a primary term which extends ten years. The MDQ available for purchase under this agreement has started, effective December 1, 2017, at 55,000 dts/d and will increase to an MDQ of 70,000 dts/d. Gas purchased from this producer will be sourced in Northeast Pennsylvania and delivered into the Columbia pipeline system for delivery to SJG.


As part of itsthe gas purchasing strategy, SJG usesthe Utilities use financial contracts to hedge against forward price risk. These contracts are recoverable through SJG’s Basic Gas Supply Servicethe BGSS/PGA Clause, (BGSS), subject to the New Jersey Board of Public Utilities (BPU)BPU/MPSC approval.
 
Supplemental Gas Supplies


SJG operates peaking facilities, located in McKee City, NJ, where it liquefies, stores and vaporizes liquefied natural gas (LNG)LNG for injection into its distribution system. SJG's LNG facility has a storage capacity equivalent to 434,300 dts of natural gas and has an installed capacity to vaporize up to 118,250 dts of LNG per day for injection into its distribution system.

ETG operates a peaking facility, located in Elizabeth, NJ, where it stores and vaporizes LNG for injection into its distribution system. ETG's LNG facility has a storage capacity equivalent to 145,000 dts of natural gas and has an installed capacity to vaporize up to 25,000 dts of LNG per day for injection into its distribution system.
 
Peak-Day Supply
 
SJG plans for a winter season peak-day demand on the basis of an average daily temperature of 2 degrees Fahrenheit (F)F or 63 Heating Degree Days, while ETG's plans on an average daily temperature of 0 degrees F or 65 Heating Degree Days. Gas demand on such a design day for the 2017-20182019-2020 winter season is estimated to be 527,490572,856 dts for SJG and 432,983 dts for ETG (excluding industrial customers). SJG projects that it hasand ETG project to have adequate supplies and interstate pipeline entitlements to meet its design day requirements. SJG and ETG both experienced itstheir highest peak-day demand for calendar year 2017 of 480,820 dts (including industrial customers)2019 on December 31, while experiencing an average temperature of 12.9 degrees F that day.January 21st.
 
Natural Gas Prices
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SJG's average cost of natural gas purchased and delivered in 2017, 2016 and 2015, including demand charges, was $3.75 per dt, $3.40 per dt and $4.71 per dt, respectively.
South Jersey Industries, Inc.
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South Jersey Energy Company
Transportation and Storage Agreements - Natural Gas
Access to gas suppliers and cost of gas are significant to the operations of SJE. No material part of the business of SJE is dependent upon a single customer or a few customers. SJE purchases delivered gas only, primarily from SJRG. Consequently, SJE maintains no transportation or storage agreements.
Electric Supply

Due to the liquidity in the market, SJE primarily purchases delivered electric in the day-ahead and real-time markets through regional transmission organizations.
 
South Jersey Resources Group
 
Transportation and Storage Agreements
National Fuel Gas Supply Corporation:
SJRG has multiple storage service agreements with National Fuel Gas Supply Corporation (National Fuel). Two contracts totaling 2,581,420 dts of capacity have evergreen provisions that extend year to year.  One additional contract covering 224,576 dts of storage capacity extends through March 31, 2020, while a final contract covering 150,040 dts of capacity expires March 31, 2023.
SJRG holds long-term firm transportation agreements with National Fuel associated with the above-mentioned agreements which expire between January 31, 2022 and October 31, 2027. Under these agreements, National Fuel provides various receipts and deliveries in Pennsylvania, which total 66,682 dts/d.  National Fuel will also provide SJRG with 25,661 dts/d of maximum daily withdrawal transportation quantity, with a primary delivery point of the Transcontinental Gas Pipeline. 
Transcontinental Gas Pipeline (Transco):
SJRG has a storage agreement with Transco for storage service at Transco's WSS facility which expires October 31, 2018. Under this contract, up to 24,479 dts/d may be injected and up to 46,380 dts/d may be withdrawn. Total storage capacity under the agreement is 4,406,135 dts.


SJRG holds various firm transportation agreements with Transco. SJRG has 10,000National Fuel, Transco, Dominion, Columbia, Tennessee and Tetco. Total transportation under contract is 503,291 dts/d of capacityd. These contracts have terms with various ending dates, ranging from Leidy, PA to Con Edison, NY expiringMarch 31, 2020 through March 31, 2043. SJRG's intentions are to renew or extend these service agreements before they expire.

SJRG also holds evergreenmultiple storage service agreements with National Fuel and Transco (for storage service at Transco's WSS facility). Total storage capacity of 41,400 dts/d with receipts in Texas and deliveries in New Jersey,under contract is approximately 5.4 MMdts. The National Fuel contract, which also expires March 31, 2043.

SJRG has transportation agreements2020, will not be renewed. The remaining contracts have terms with Transco acquiredvarious ending dates, ranging from June 30, 2020 through a capacity release program from SJG of 47,500 dts/d from Pennsylvania to SJG, and 10,000 dts/d from Texas to SJG. These agreements expire between March 31, 2018 and April 30, 2020.
Dominion Gas Transmission:
SJRG has a firm transportation agreement with Dominion2023, for which expires October 31, 2022. Under this agreement, Dominion will provide SJRG with 5,000 dts/d of deliveriesSJRG's intentions are to Leidy, PA and receipts at Lebanon, OH.
Columbia Gas Transmission:

SJRG holds various firm transportationrenew or extend these service agreements with Columbia. SJRG has 50,000 dts/d capacity with receipts from Marcellus to southern NJ expiring October 31, 2018. SJRG also has 36,866 dts/d of capacity from Marcellus to southern NJ and PA expiring between October 31, 2019 and October 31, 2024.
South Jersey Industries, Inc.
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SJRG has a storage agreement with Columbia for service under Columbia's FSS rate schedule. Under this evergreen agreement, Columbia will provide SJRG with storage capacity of 1,249,515 dts. Under this agreement, 19,029 dts/d may be withdrawn from storage and 9,514 dts/d may be injected.
SJRG holds firm transportation related to the above mentioned storage agreement which provides for receipts from storage and deliveries to New Jersey of 19,029 dts/d. Under this evergreen contract, these services with Columbia were released to SJRG by SJG.
Columbia Gulf Transmission:
SJRG holds a firm transportation agreement with Columbia Gulf which expires October 31, 2019. Under this agreement, Columbia Gulf provides receipts in Louisiana with deliveries at Leach, Kentucky in the amount of 15,000 dts/d.    

Tennessee Gas Transmission:
SJRG holds firm transportation agreements with the Tennessee Gas Pipeline which expire between October 31, 2018 and May 31, 2033. Under these agreements, the Tennessee Gas Pipeline provides various receipts and deliveries in Pennsylvania, which total 199,770 dts/d.

Texas Eastern Transmission (Tetco):

SJRG holds firm transportation agreements with Tetco. SJRG has an agreement for Tetco to provide 56,250 dts/d of capacity expiring October 31, 2025, and an additional evergreen contract of 15,125 dts/d of capacity expiring March 31, 2019.before they expire.
 
Gas Supplies
 
SJRG has entered into several long-term natural gas supply agreements to purchase a minimum of 604,000 dts/d and up to 954,000772,500 dts/d, depending upon production levels, for terms ranging from threefour to ten years at index-based prices.
 
Patents and Franchises
 
South Jersey Gas Company
SJG holdsThe Utilities hold nonexclusive franchises granted by municipalities in the seven-county area of southern New Jersey that it serves.areas to which they serve. No other natural gas public utility presently serves the territory covered by SJG'sthe Utilities' franchises. Otherwise, patents, trademarks, licenses, franchises and concessions are not material to the business of SJG.the Utilities.
 
Seasonal Aspects
 
South Jersey Gas CompanyUtility Companies
 
SJG experiencesThe Utilities experience seasonal fluctuations in sales when selling natural gas for heating purposes. SJG meets thisThe Utilities meet these seasonal fluctuationfluctuations in demand from its firm customers by buying and storing gas during the summer months, and by drawing from storage and purchasing supplemental supplies during the heating season. As a result of this seasonality, SJG'sthe Utilities' revenues and net income are significantly higher during the first and fourth quarters than during the second and third quarters of the year.
 
Non-Utility Companies
 
Among SJI's non-utility activities, wholesale (including fuel supply management) and retail gas marketing havehas seasonal patterns similar to SJG's.the Utilities. Activities such as energy services and energy project development do not follow seasonal patterns. Other activities, such as retail electric marketing, can have seasonal earnings patterns that are different from the utility.Utilities. The first and fourth quarters remain the periods where most of SJI's revenue and net income is produced.
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Working Capital Practices
 
Reference is made to “Liquidity and Capital Resources” included in Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations,” of this Report.
 
Customers
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No material part of the Company's business is dependent upon a single customer or a few customers, the loss of which would be expected to have a material adverse effect on the results of operations of SJI or of SJG on a consolidated basis.Part I
Backlog
Backlog is not material to an understanding of SJI's business or that of any of its subsidiaries.
Government Contracts
 
No material portion of the business of SJI or any of its subsidiaries is subject to renegotiation of profits or termination of contracts or subcontracts at the election of any government.
 
Competition
 
Information on competition for SJI and its subsidiaries can be found in Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations,” of this Report.
  
Research
During the last three fiscal years, neither SJI nor any of its subsidiaries engaged in research activities to any material extent.
Environmental Matters
 
Information on environmental matters for SJI and its subsidiaries can be found in Note 15 of the consolidated financial statements included under Item 8 of this Report.
 
Employees
 
SJI and its subsidiaries had a total of approximately 7601,100 employees as of December 31, 2017,2019, approximately 530450 of which were SJG employees. Of that total, approximately 300those totals, 495 of both SJISJI's employees are unionized and 319 SJG employees are unionized (all of SJI's unionized employees are with SJG)SJG or ETG). SJI has collective bargaining agreements with unions that represent these employees: the International Brotherhood of Electrical Workers (IBEW)IBEW Local 12931293; IAM Local 76; and the International Association of Machinists and Aerospace Workers (IAM)UWUA Local 76.424.  SJG employees represented by the IBEW operate under a collective bargaining agreement that runs through February 2018, for which negotiations are still ongoing.2022. SJG's remaining unionized employees are represented by the IAM and operate under a collective bargaining agreement that runs through August 2021. ETG employees represented by the UWUA operate under a collective bargaining agreement that runs through November 2020.
 
Financial Information About Foreign and Domestic Operations and Export Sales
 
SJI has no foreign operations and export sales have not been a significant part of SJI's business.

South Jersey Industries, Inc.
Part I


Item 1A. Risk Factors
 
SJI and its subsidiaries, including SJG, operate in an environment that involves risks, many of which are beyond our control. SJI has identified the following risk factors that could cause SJI's operating results and financial condition to be materially adversely affected. In addition, new risks may emerge at any time, and SJI cannot predict those risks or the extent to which they may affect SJI's businesses or financial performance. To the extent such risk factors may affect SJI's utility business, SJG,businesses, such risk factors may also affect SJG's business or performance.
 
•SJI is a holding company and its assets consist primarily of investments in subsidiaries. Certain subsidiaries of SJI have restrictions on the ability to pay cash dividends, most notably SJG and ETG's First Mortgage Indenture. Should SJI's subsidiaries be unable to pay dividends or make other payments to SJI as a result of these restrictions, or for other financial, regulatory, legal or other reasons, SJI's ability to pay dividends on its common stock could be limited. SJI's stock price could be adversely affected as a result.


•SJI's business activities, including those of SJG, are concentrated in southern New Jersey. Changes in the economies of southern New Jersey and surrounding regions could negatively impact the growth opportunities available to SJI and SJG, and the financial condition of the customers and prospects of SJI and SJG.


•Changes in the regulatory environment or unfavorable rate regulation at its utilitythe Utilities may have an unfavorable impact on SJI's and SJG's financial performance or condition.  SJG and ETG are regulated by the BPU, and ELK is regulated by the New Jersey Board of Public Utilities (BPU) which hasMPSC. These regulatory commissions have authority over many of the activities of the utility business including, but not limited to, the rates it chargesthe Utilities charge to itstheir respective customers, the amount and type of securities itthey can issue, the nature of investments itthey can make, the nature and quality of services it provides,they provide, safety standards and other matters. The extent to which the actions of regulatory commissions restrict or delay SJG'sthe Utilities' ability to earn a reasonable rate of return on invested capital and/or fully recover operating costs may adversely affect SJI's and SJG's results of operations, financial condition and cash flows.

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•SJI and SJG may not be able to respond effectively to competition, which may negatively impact their financial performance or condition. Regulatory initiatives may provide or enhance opportunities for competitors that could reduce utility income obtained from existing or prospective customers. Also, competitors in all of SJI's business lines may be able to provide superior or less costly products or services based upon currently available or newly developed technologies.


•Warm weather, high commodity costs, or customer conservation initiatives could result in reduced demand for some of SJI's and SJG's energy products and services. SJG currently has a conservation incentive program clause that protects its revenues and gross margin against usage that is lower than a set level. ETG has a weather normalization clause which allows ETG to implement surcharges or credits during the months of October through May to compensate for weather-related changes in customer usage from the previous winter period. Should this clausethese clauses be terminated without replacement, lower customer energy utilization levels would likely reduce SJI's and SJG's net income. Further, during periods of warmer temperatures, demand and volatility in the natural gas market could decrease, which would negatively impact their financial results.


•High natural gas prices could cause more of SJI's and SJG's receivables to be uncollectible. Higher levels of uncollectibles from either residential or commercial customers would negatively impact SJI's and SJG'snet income and could result in higher working capital requirements.


•SJI's and SJG's net income could decrease if it is required to incur additional costs to comply with new governmental safety, health or environmental legislation. SJI and SJG are subject to extensive and changing federal and state laws and regulations that impact many aspects of its business; including the storage, transportation and distribution of natural gas, as well as the remediation of environmental contamination at former manufactured gas plant facilities.


South Jersey Industries, Inc.
Part I

•Climate change legislation could impact SJI's and SJG's financial performance and condition.  Climate change is receiving ever increasing attention from both scientists and legislators.  The debate is ongoing as to the extent to which our climate is changing, the potential causes of this change and its future impacts.  Some attribute global warming to increased levels of greenhouse gases, which has led to significant legislative and regulatory efforts to limit greenhouse gas emissions. The outcome of federal and state actions to address global climate change could result in a variety of regulatory programs, including additional charges to fund energy efficiency activities or other regulatory actions.  These actions could affect the demand for natural gas and electricity, result in increased costs to our business and impact the prices we charge our customers. Because natural gas is a fossil fuel with low carbon content, it is possible that future carbon constraints could create additional demands for natural gas, both for production of electricity and direct use in homes and businesses.  Any adoption by federal or state governments mandating a substantial reduction in greenhouse gas emissions could have far-reaching and significant impacts on the energy industry.  We cannot predict the potential impact of such laws or regulations on our future consolidated financial condition, results of operations or cash flows.


•SJI's wholesale commodity marketing and retail electric businesses are exposed to the risk that counterparties that owe money or energy to SJI will not be able to meet their obligations for operational or financial reasons. SJI could be forced to buy or sell commodity at a loss as a result of such failure. Such a failure, if large enough, could also impact SJI's liquidity.


•Increasing interest rates would negatively impact the net income of SJI and SJG. Several of SJI's subsidiaries, including SJG, are capital intensive, resulting in the incurrence of significant amounts of debt financing. Some of the long-term debt of SJI and its subsidiaries is issued at fixed rates or has utilized interest rate swaps to mitigate changes in variable rates.  However, long-term debt of SJI and SJG at variable rates, along with all variable rate short-term borrowings, are exposed to the impact of rising interest rates.
Changes in the method of determining LIBOR or the replacement of LIBOR with an alternative reference rates could also impact SJI and SJG in the future.


•The inability to obtain capital, particularly short-term capital from commercial banks, could negatively impact the daily operations and financial performance of SJI and SJG. SJI and SJG use short-term borrowings under committed credit facilities provided by commercial banks to supplement cash provided by operations, to support working capital needs, and to finance capital expenditures, as incurred. SJG also relies upon short-term borrowings issued under a commercial paper program supported by a committed bank credit facility to support working capital needs, and to finance capital expenditures, as incurred. If the customary sources of short-term capital were no longer available due to market conditions, SJI and its subsidiaries may not be able to meet their working capital and capital expenditure requirements and borrowing costs could increase.

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•A downgrade in either SJI's or SJG's credit ratings could negatively affect our ability to access adequate and cost-effective capital. Our ability to obtain adequate and cost-effective capital depends to a significant degree on our credit ratings, which are greatly influenced by our financial condition and results of operations. If the rating agencies downgrade either SJI's or SJG's credit ratings, particularly below investment grade, our borrowing costs would increase. In addition, we would likely be required to pay higher interest rates in future financings and potential funding sources would likely decrease. To the extent that a decline in SJG's credit rating has a negative effect on SJI, SJI could be required to provide additional support to certain counterparties.


•Hedging activities of the Company designed to protect against commodity price or interest rate risk may cause fluctuations in reported financial results and SJI's stock price could be adversely affected as a result. Although SJI enters into various contracts to hedge the value of energy assets, liabilities, firm commitments or forecasted transactions, the timing of the recognition of gains or losses on these economic hedges in accordance with accounting principles generally accepted in the United States of AmericaGAAP does not always match up with the gains or losses on the items being hedged. The difference in accounting can result in volatility in reported results, even though the expected profit margin is essentially unchanged from the dates the transactions were consummated.


•The inability to obtain natural gas or electricity from suppliers would negatively impact the financial performance of SJI and SJG. Several of SJI's subsidiaries, including SJG, have businesses based upon the ability to deliver natural gas or electricity to customers. Disruption in the production or transportation to SJI or SJG from its suppliers could prevent SJI or SJG from completing sales to its customers.


South Jersey Industries, Inc.
Part I

•Transporting and storing natural gas involves numerous risks that may result in accidents and other operating risks and costs. SJI's and SJG's gas distribution activities involve a variety of inherent hazards and operating risks, such as leaks, accidents, mechanical problems, natural disasters or terrorist activities which could cause substantial financial losses. In addition, these risks could result in loss of human life, significant damage to property, environmental pollution and impairment of operations, which in turn could lead to substantial losses. In accordance with customary industry practice, SJI and SJG maintain insurance against some, but not all, of these risks and losses. The occurrence of any of these events, even if fully covered by insurance, could adversely affect SJI's or SJG's financial position, results of operations and cash flows.


•Adverse results in legal proceedings could be detrimental to the financial condition of SJI or SJG. The outcomes of legalproceedings can be unpredictable and can result in adverse judgments.


Renewable energy projects at Marina receive significant benefit from regulatory incentives. A significant portion of the expected return on investment of these renewable energy projects is dependent upon the future market for renewable energy credits (RECs). The benefits from RECs are produced during the entire life of the project. As a result, earnings from existing projects would be adversely affected without a liquid REC market. Therefore, these projects are exposed to the risk that favorable regulatory incentives expire or are adversely modified. A decrease in the future value of electricity and Solar RECs (SRECs) impacted by market conditions and/or legislative changes may negatively impact Marina's return on its investments as well as lead to impairment of the respective assets.

•Constraints in available pipeline capacity, particularly in the Marcellus Shale producing region, may negatively impact SJI's financial performance. Natural gas production and/or pipeline transportation disruptions in the Marcellus region, where SJI has natural gas receipt requirements, may cause temporary take-away constraints resulting in higher transportation costs and the sale of shale gas at a loss.


•SJI's and SJG's business could be adversely impacted by strikes or work stoppages by its unionized employees. The gas utility operations of SJG and ETG are dependent upon employees represented by unions and covered under collective bargaining agreements. A work stoppage could negatively impact operations, which could impact financial results as well as customer relationships.


•The risk of terrorism may adversely affect the economy as well as SJI's and SJG's business. An act of terror could result in disruptions of natural gas supplies and cause instability in the financial and capital markets. This could adversely impact SJI's or SJG's ability to deliver products or raise capital and could adversely impact its results of operations.


•Failure to obtain proper approvals and property rights in the PennEast pipeline could hinder SJI's equity investment in the project.The following events have occurred on PennEast in recent months:
◦On September 10, 2019, the U.S. Court of Appeals for the Third Circuit ruled that PennEast does not have eminent domain authority over NJ state-owned lands. A Petition for Rehearing En Banc was denied by the U.S. Court of Appeals for the Third Circuit on November 5, 2019.
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South Jersey Industries, Inc.
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◦On October 8, 2019, the NJDEP denied and closed PennEast’s application for several permits without prejudice, citing the Third Circuit Court decision. On October 11, 2019, PennEast submitted a letter to the NJDEP objecting to its position that the application is administratively incomplete. PennEast's objections were rejected by the NJDEP on November 18, 2019.
◦In December 2019, PennEast asked the FERC for a two-year extension to construct the pipeline.
◦On January 30, 2020, the FERC voted to approve PennEast’s petition for a declaratory order and expedited action requesting that the body issue an order interpreting the Natural Gas Act’s eminent domain authority. On the same day, PennEast filed an amendment with FERC to construct PennEast in two phases. Phase one consists of construction of a pipeline in Pennsylvania from the eastern Marcellus Shale region in Luzerne County that would terminate in Northampton County. Phase two includes construction of the remaining original certificated route in Pennsylvania and New Jersey. Construction developmentis expected to begin following approval by FERC of the phased approach and operationreceipt of energy investments, specificallyany remaining governmental and regulatory permits.
◦On February 18, 2020, PennEast filed a Petition for a Writ of Certiorari with the Supreme Court of the United States to review the September 10, 2019 Third Circuit decision.
◦On February 20, 2020, FERC granted PennEast’s request for a two-year extension to complete the construction of the pipeline.

PennEast pipeline, are subjectmanagement remains committed to federalpursuing the project and state regulatory oversight and require certain property rights from public and private property owners, as well as regulatory approvals, including environmental and other permits and licenses.intends to pursue all available options. SJI, as well as our joint venture partners, in the PennEast pipeline, may be unable to obtain all such needed property rights, permits and licenses to successfully construct and develop the pipeline, and failing to do sothis, or being unable to identify or implement other options, could cause SJI's equity investment in the project to become impaired. Such impairment could have a materially adverse effect on SJI's financial condition and results of operations.


•Our business could be harmed by cybersecurity threats and related disruptions. We rely extensively on information technology systems to process transactions, transmit and store information and manage our business. Disruption or failure of our information technology systems could shut down our facilities or otherwise harm our ability to safely deliver natural gas to our customers, serve our customers effectively, manage our assets, or otherwise materially disrupt our business. Cyber threats are constantly evolving, increasing the difficulty of detecting and successfully defending against them. SJI and SJG have experienced such attacks in the past; however, based on information currently available to SJI and SJG, none have had a material impact on our business, financial condition, results of operations or cash flows. In response, we have invested in expanded cybersecurity systems and procedures designed to safeguard the continuous and uninterrupted performance of our information technology systems and protect against unauthorized access. However, all information technology systems are potentially vulnerable to security threats, including hacking, viruses, other malicious software, and other unlawful attempts to disrupt or gain access to such systems. There is no guarantee that our cybersecurity systems and procedures will prevent or detect the unauthorized access by experienced computer programmers, hackers or others. An attack on or failure of our information technology systems could result in the unauthorized disclosure, theft, misuse or destruction of customer or employee data or business or confidential information, or disrupt the performance of our information technology
South Jersey Industries, Inc.
Part I

systems. These events could expose us to potential liability, litigation, governmental inquiries, investigations or regulatory actions, harm our brand and reputation, diminish customer confidence, disrupt operations, and subject us to payment of fines or other penalties, legal claims by our clients and significant remediation costs.


•Tax law or regulation changes may negatively impact financial performance. SJI and SJG are subject to taxation by various taxing authorities at the federal, state and local levels. Any future changes in tax laws or regulations, including Tax Reform, or interpretation of such laws or regulations, could have a materially adverse effect on SJI's and SJG's financial condition and results of operations.

•The potential loss of long-tenured and skilled employees could negatively impact the daily operations and financial performance of SJI and SJG. In October 2018, the Company announced an ERIP for eligible non-union employees and officers. Several employees accepted the ERIP and have retired from the Company throughout 2019. The departure of the employees who accepted the ERIP and other employees that may either retire or leave the Company for other reasons, who have varying roles and corresponding oversight responsibilities for SJI and SJG, could adversely impact SJI's and SJG's results of operations.


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Part I
•Our stated long-term goals are based on various assumptions and beliefs that may not prove to be accurate, and we may not achieve our stated long-term goals by 2020 or at all. Our SJI's current long-term goals are to (i) grow Economic Earnings to $160 millionPer Share 6-8% annually driven by 2020; (ii) improve thehigh quality of our earnings; (iii) maintain the strength of ourearnings, a strong balance sheet;sheet and (iv) maintain a low-to-moderate risk profile. The goal of $160 million does not include the expected financial impact of the acquisition of Elizabethtown Gas and Elkton Gas discussed below. Management established those goals in conjunction with our boardSJI's Board of directorsDirectors based upon a number of different internal and external factors that characterize and influence ourSJI's current and expected future activities. For example, these long-term goals are based on certain assumptions regarding our participation in a current project to build an approximately 118-mile natural gas pipeline in Pennsylvania and New Jersey.PennEast. However, construction on this project is not expectedhas been delayed due to begin until 2018 and is estimated to be completed in the second half of 2019, but may be subject to delay.several unfavorable court rulings (see above). As a result, no assurance can be given that this project will be completed on time or at all. Also, as noted below, the acquisition of Elizabethtown Gas and Gas is subject to many approvals, and no assurance can be given that the acquisition will be consummated, or, if consummated, that these two entities will perform as expected. Further, the economy of Southern New Jersey has remained depressed relative to other regions, which could cause increased customer delinquencies or otherwise negatively affect achievement of our long-term earnings goals. The 2017Changes in the New Jersey gubernatorial election resulted in a change inState administration which could lead to unfavorable state and local regulatory changes that could delay approvals, require environmental remediation or capital or other expenditures or otherwise adversely affect our results of operations, financial condition or cash flows. Other factors, assumptions and beliefs of management and our board of directors on which our long-term goals were based may also prove to differ materially from actual future results. Accordingly, we may not achieve our stated long-term goals by 2020 or at all, or our stated long-term goals may be negatively revised as a result of less than expected progress toward achieving these goals, and you are therefore cautioned not to place undue reliance on these goals.


Our acquisition of Elizabethtown Gas and Elkton Gas•The Company may not be consummated,able to obtain refinancings of short-term debt, causing the ability to pay such debt at maturity to be at risk. The Company has $467.9 million of long-term debt that is due within one year, and if consummated,$848.7 million of notes payable which includes borrowings under the commercial paper program (see Note 13 to the consolidated financial statements). SJI expects to reduce its debt over the next twelve months using cash provided from the sale of assets (see Note 1 to the consolidated financial statements), along with utilizing funds provided from refinancing activity and the Company's revolving credit facilities. The Company can offer no assurances that these refinancings or sales will be successful.

•The agreements to sell certain assets of the Company, including the sale of ELK, may not perform as expected. Webe consummated. The Company has committed to a plan to sell its remaining solar assets; however we cannot guarantee that these sales will be consummated. Further, we have entered into agreementsan agreement to acquiresell the assets of New Jersey-based Elizabethtown Gas and Maryland-based Elkton Gas.ELK. Completion of the transaction is subject to a number of risks and uncertainties and we can provide no assurance that the various closing conditions to the acquisition agreement will be satisfied, including that the required governmental and other necessary approvals will be obtained. Although we have obtained a bridge commitment, subject to certain conditions, to fund the acquisition, our ability to raise the necessary funds to provide permanent financing through the issuance of equity or debt securities is subject to market conditions and other risks and uncertainties, and there can be no assurance that we will be able to raise the necessary funds on terms we consider favorable, or at all.

•The inability to complete the transaction, or to obtain permanent financing on terms that are favorable, or at all,2020 NJ EMP could have a material adverse effect on our resultsnegative impact SJI's financial results. In January 2020, the Governor of operations, financial conditionNJ unveiled the state's EMP, which outlines key strategies to reach the Administration’s goal of 100% clean energy by 2050. The Governor also signed an executive order directing the NJDEP to make regulatory reforms to reduce emissions and prospects. Historically, acquisitions have not been a part of our growth strategy. Althoughadapt to climate change. With this executive action, NJ is the acquired businesses have significant operating histories, we will have no history of owning and operating these businesses and limited or no experience operatingfirst state in the territories served by these businesses. Wenation to pursue such a comprehensive and aggressive suite of climate change regulations. The Company can provide no assurance thatassurances as to what the acquired businesses will perform as expected, that integration or other one-time costs will not be greater than expected, that we will not incur unforeseen obligations or liabilities or that the rate of return from such businesses will justify our decision to invest capital to acquire them.

We may experience difficulties in integrating the operations of Elizabethtown Gas and Elkton Gas into our business and in realizing the expected benefitsimpact of the proposed acquisition.EMP will be on short and long-term financial results.

•The success ofCompany's efforts to exit the proposed acquisition of Elizabethtown Gas and Elkton Gas, if completed, will depend in part on our ability to realize the anticipated business opportunities from combining the operations of Elizabethtown Gas and Elkton Gas with our business in an efficient and effective manner. The integration process could take longer than anticipatedTSA are ongoing and could result inbe subject to further delays and costs. In January 2020, the lossCompany extended its TSA agreement on ETG and ELK to the end of key employees,March 2020 (see Note 15 to the disruption of each company’s ongoing businesses, taxconsolidated financial statements). Further delays could cause the Company to incur additional costs or inefficiencies, or inconsistencies in standards, controls, information technology systems, procedures and policies, any of which could adversely affect our ability to maintain relationships with customers, employees or other third parties, or our ability to achieve the anticipated benefits of the transaction, and could harm our financial performance. If we are unable to successfully or timely integrate the operations of Elizabethtown Gas and Elkton Gas with our business, we may incur unanticipated liabilities and be unable to realize the revenue growth, synergies and other anticipated benefits resulting from the proposed transaction, and our business, results of operations and financial condition could be materially and adversely affected.
that would impact net income.





Item 1B. Unresolved Staff Comments
 
None.




Item 2. Properties
 
The principal property of SJI consists of SJG's gas transmission and distribution systems that include mains, service connections and meters. The transmission facilities carry the gas from the connections with Transco and Columbia to SJG's distribution systems for delivery to customers. As of December 31, 2017,2019, there were approximately 146.2146 miles of mains in the transmission systems and 6,6456,701 miles of mains in the distribution systems.
 
17

SJG owns approximately 15444 acres of land in Folsom, New Jersey which is the site of SJI's corporate headquarters. Approximately 14030 acres of this property is deed restricted. SJG also has office and service buildings at seven other locations in its territory. There is a liquefied natural gas storage, liquefaction and vaporization facility at one of these locations.

In November 2018, SJG opened its corporate headquarters in Atlantic City, New Jersey.

ETG is headquartered in Union, NJ and owns approximately 3,290 miles of distribution pipeline in seven counties in northern and central New Jersey. ETG has office and service buildings at six other locations in its territory. There is a liquefied natural gas storage, liquefaction and vaporization facility at one of these locations. ELK is headquartered in Elkton, MD and has one other service building in its territory.

As of December 31, 2017,2019, SJI's utility plant had a gross book value of approximately $4.9 billion and net book value, after accumulated depreciation, of approximately $4.1 billion. In 2019, SJI spent approximately $504.2 million on capital expenditures for utility plant and nonutility property and equipment, and there were retirements of property having an aggregate gross book cost of approximately $54.5 million. As of December 31, 2019, SJG's utility plant had a gross book value of $2.7approximately $3.2 billion and a net book value, after accumulated depreciation, of $2.2approximately $2.6 billion. In 2017,2019, SJG spent $248.9approximately $257.7 million on additions tocapital expenditures for utility plant and there were retirements of property having an aggregate gross book cost of $26.6approximately $30.8 million.

Virtually all of SJG'sthe Utilities transmission pipeline, distribution mains and service connections are under streets or highways or on the property of others. The transmission and distribution systems are maintained under franchises or permits or rights-of-way, many of which are perpetual. SJG'sThe properties of SJG and ETG (other than property specifically excluded) are subject to a lienliens of mortgage under which itstheir respective first mortgage bonds are outstanding. We believe these properties are generally well maintained and in good operating condition.
 
Nonutility property and equipment withhas a net book value of $546.1 million consists primarilyapproximately $12.2 million. This amount is reduced compared to the prior year due to the sale of Marina's energy projects.certain solar assets, along with MTF and ACB being recorded as held for sale on the consolidated balance sheet (see Note 1 to the consolidated financial statements).
 
South Jersey Fuel, Inc.,SJF an inactive subsidiary, owns landreal estate in Deptford Township and owns real estate in Upper Township, New Jersey.


Item 3. Legal Proceedings


SJI and SJG are subject to claims, actions and other legal proceedings arising in the ordinary course of businessbusiness. Neither SJI nor SJG can make any assurance as to the outcome of any of these actions but, based on an analysis of these claims and other legal proceedings. SJI has been named in, among other actions, certain gas supply and capacity management contract disputes and certain product liability claims related to our former sand mining subsidiary.

SJI is currently involved in a pricing dispute related to 2 long-term gas supply contracts. On May 8, 2017, a jury from the United States District Court for the District of Colorado returned a verdict in favor of the plaintiff supplier. On July 21, 2017, the court entered final judgment against SJG and SJRG. As a result of this ruling, SJG and SJRG have accrued $20.4 million and $53.6 million, respectively, through December 31, 2017. Weconsultation with outside counsel, we do not believe that the amountany of these claims, other than those described in Note 15 to be paid by SJG reflects a gas cost that ultimately will be recovered from SJG’s customers through adjusted rates. As such, this amount was recorded as both an Accounts Payable and a reduction of Regulatory Liabilities on the consolidated balance sheets of both SJI and SJG as of December 31, 2017. The amount associated with SJRG was also recorded as an Accounts Payable on the consolidated balance sheets of SJI as of December 31, 2017, with charges of $49.6 million to Cost of Sales - Nonutility on the consolidatedfinancial statements, of income of SJI for the year ended December 31, 2017. SJI also recorded $4.0 million to Interest Charges on the consolidated statements of income for the year ended December 31, 2017. The plaintiff supplier filed a second related lawsuit against SJG and SJRG in the United States District Court for the District of Colorado on December 21, 2017, alleging that SJG and SJRG have continued to breach the gas supply contracts notwithstanding the judgmentin the prior lawsuit.  The plaintiff supplier is seeking recovery of the amounts disputed by SJI since the earlier judgment, and a declaration regarding the price under the disputed contracts going forward until the contracts terminate in October 2019.  SJI moved to stay the second lawsuit pending resolution of the post-judgment motions in the first lawsuit and any appeal of that lawsuit.  All legal reserves related to this second lawsuit are recorded as part of the accrued amounts disclosed above.


South Jersey Industries, Inc.
Part I

SJI was involved in a dispute in the Court of Common Pleas of Philadelphia related to a three-year capacity management contract with a counterparty. The counterparty claimed that it was owed approximately $13.3 million, plus interest, from SJRG under a sharing credit within the contract. SJI settled with the counterparty for $9.5 million, which amount was recorded to Cost of Sales - Nonutility on SJI's consolidated statements of income for the year ended December 31, 2017. SJI made the payment in September 2017.

SJI was also involved in a tariff rate dispute with a counterparty, whereby SJI contended that the counterparty was overcharging for storage demand charges over a ten-year period. In November 2017, SJI received a favorable decision from the FERC on this matter, which resulted in a total pre-tax income impact of $9.3 million. Of this amount, $7.4 million related to the actual overcharges and was recorded as a decrease to Cost of Sales - Nonutility on the consolidated statements of income for the year ended December 31, 2017. The remaining $1.9 million related to interest income and was recorded in Other Income on the consolidated statements of income for the year ended December 31, 2017. SJI received payment from the counterparty in November 2017.

Liabilities related to claims are accrued when the amount or range of amounts of probable settlement costs or other charges for these claims canwould be reasonably estimated. For matters other than the disputes that are noted above, SJI has accrued approximately $3.0 million and $3.1 million relatedlikely to all claims in the aggregate as of December 31, 2017 and 2016, respectively, of which SJG has accrued approximately $0.7 million and $0.6 million as of December 31, 2017 and 2016, respectively. Although SJI and SJG do not presently believe that these matters will have a material adverse effectimpact on itsthe business givenor financial statements of SJI or SJG. See Note 15 to the inherent uncertainties in such situations, SJI and SJG can provide no assurance regarding the outcome of litigation.consolidated financial statements for more detail on these claims.


Item 4. Mine Safety Disclosures


Not applicable.



Item 4A. Information about our Executive Officers of the Registrant


Set forth below are the names, ages and positions of SJI's executive officers along with their business experience during the past five years. All executive officers of SJI are elected annually and serve at the discretion of theits Board of Directors. All information is as of the date of the filing of this Report.


18
Name, age and position with the CompanyPeriod Served
Michael J. Renna, Age 50
Chief Executive OfficerApril 2015 - Present
DirectorJanuary 2014 - Present
PresidentJanuary 2014 - Present
Chief Operating OfficerJanuary 2014 - April 2015
Senior Vice PresidentJanuary 2013 - January 2014
Stephen H. Clark, Age 59
Executive Vice PresidentJanuary 2017 - Present
Senior Vice PresidentApril 2015 - December 2016
Chief Financial OfficerNovember 2013 - Present
Vice PresidentJanuary 2013 - November 2013
TreasurerJanuary 2004 - April 2014
Kenneth A. Lynch, Age 52
Chief Risk OfficerJanuary 2017 - Present
Senior Vice PresidentApril 2015 - Present
Chief Accounting OfficerJanuary 2013 - December 2016
Kathleen A. McEndy, Age 64
Chief Administrative OfficerJune 2015 - Present
Senior Vice PresidentApril 2015 - Present

South Jersey Industries, Inc.
Part I

Name, age and position with the CompanyPeriod Served
Michael J. Renna, Age 52
Chief Executive OfficerApril 2015 - Present
DirectorJanuary 2014 - Present
PresidentJanuary 2014 - Present
Chief Operating OfficerJanuary 2014 - April 2015
Cielo Hernandez, Age 44
Chief Human ResourcesFinancial OfficerMarchJanuary 2019 - Present
Senior Vice PresidentJanuary 2019 - Present
VP and Chief Financial Officer North America and Canada Region, Maersk LineFebruary 2015 - December 2018
VP & CFO Latin America Region, APM TerminalsNovember 2013 - JuneJanuary 2015
Vice PresidentMarch 2013 - April 2015
Principal, The McEndy Group, LLCJanuary 2009 - March 2013
Gregory M. NuzzoDavid Robbins, Jr., Age 4357
President, South Jersey Energy SolutionsSJIUAugust 2018 - Present
President, SJGJanuary 2017 - PresentAugust 2018
Chief Operating Officer, South Jersey Energy SolutionsJanuary 2017 - Present
Senior Vice PresidentApril 2015 - Present
Vice PresidentApril 2014 - April 2015
Senior Vice President, South Jersey Energy SolutionsSJESJanuary 2013 - December 2016
Senior Vice President, South Jersey Resources GroupJanuary 2013 - March 2014
David Robbins, Jr., Age 55
President, South Jersey Gas CompanyJanuary 2017 - Present
Senior Vice PresidentApril 2015 - Present
Vice PresidentApril 2014 - April 2015
Senior Vice President, South Jersey Energy SolutionsJanuary 2013 - December 2016
Chief Operating Officer, South Jersey Energy SolutionsJanuary 2013 - April 2014
Steven R. Cocchi, Age 4042
Chief Strategy &and Development OfficerJanuary 2018 - Present
Interim General CounselAugust 2017 - December 2017
Senior Vice President, Strategy and GrowthApril 2017 - Present
Vice President, Strategy and GrowthJanuary 2017 - April 2017
Vice President, Rates and Regulatory AffairsApril 2015 - January 2017
Director, Rates and Revenue RequirementsOctober 2011 - April 2015
Melissa Orsen, Age 4244
Senior Vice President & General CounselJanuary 2018 - Present
Chief Executive Officer, New Jersey Economic Development AuthorityMarch 2015 - December 2017
Deputy Commissioner, New Jersey Department of Community AffairsMarch 2014 - March 2015
Chief of Staff & Lieutenant Governor, Office of the New Jersey GovernorJanuary 2011 - March 2014



19

PART II


Item 5. Market for the Registrant's Common Equity,
Related Stockholder Matters and Issuer Purchases of Equity Securities


South Jersey Industries, Inc.


Market Price of Common Stock and Related Information
          
Quarter EndedMarket Price Per ShareDividends Quarter EndedMarket Price Per ShareDividends 
   Declared    Declared 
2017HighLowPer Share 2016HighLowPer Share 
          
March 31$35.97
$31.39
$0.273
 March 31$29.14
$22.06
$0.264
 
June 30$38.40
$33.93
$0.273
 June 30$31.64
$26.29
$0.264
 
September 30$36.41
$32.83
$0.273
 September 30$32.03
$28.17
$0.264
 
December 31$36.01
$30.75
$0.280
 December 31$34.85
$27.51
$0.273
 

These quotations are based on the list of composite transactions of the New York Stock Exchange. Our stock is traded on the New York Stock Exchange under the symbol SJI. We have declared and expect to continue to declare regular quarterly cash dividends. As of December 31, 2017,2019, the latest available date, our records indicate there were 6,5176,011 shareholders of record.


Stock Performance Graph


The performance graph below illustrates a five-year comparison of cumulative total returns based on an initial investment of $100 in South Jersey Industries, Inc. common stock, as compared with the S&P 500 Stock Index and the S&P Utility Index for the five-year period through December 31, 2017.2019.


This performance chart assumes:


•$100 invested on December 31, 20122014 in South Jersey Industries, Inc. common stock, in the S&P 500 Stock Index and in the S&P Utility Index; and
•All dividends are reinvested.



sji-20191231_g1.jpg
20

Dec-12Dec-13Dec-14Dec-15Dec-16Dec-17Dec-14Dec-15Dec-16Dec-17Dec-18Dec-19
S&P 500$100
$132
$151
$153
$171
$208
S&P 500100  $101  $114  $138  $132  $174  
S&P Utilities$100
$113
$146
$139
$162
$181
S&P Utilities$100  $95  $111  $124  $129  $163  
SJI$100
$115
$125
$104
$154
$147
SJI$100  $83  $123  $118  $109  $134  


Information required by this item is also found in Note 6 of the consolidated financial statements included under Item 8 of this Report.


SJI has a history of paying quarterly dividends and has a stated goal of increasing its dividend annually.
 
In 2017,2019, non-employee members of SJI's Board of Directors received an aggregate of 30,39430,961 shares of restricted stock, valued at that time at $1,022,454,$838,114, as part of their compensation for serving on the Board.


Issuer Purchases of Equity Securities - There were no purchases by SJI of its own common stock during the year ended December 31, 2017.2019.


South Jersey Gas Company


All of the outstanding common stock of SJG (its only class of equity securities) is owned by SJI. The common stock is not traded on any stock exchange.


SJG is restricted under its First Mortgage Indenture, as supplemented, as to the amount of cash dividends or other distributions that may be paid on its common stock. As of December 31, 2017,2019, these restrictions did not affect the amount that may be distributed from SJG’s retained earnings. SJG declared and paid cash dividends of $20.0 million in 2017 to SJI. No dividends were declared or paid on SJG's common stock in 2016.2019 or 2018.



Item 6. Selected Financial Data


Five-Year Summary of Selected Financial Data
(In Thousands Where Applicable)


South Jersey Industries, Inc. and Subsidiaries
Year Ended December 31,


The following financial data has been obtained from SJI’s consolidated financial statements (in thousands, except for ratios, shares data and earnings per share):

 20192018201720162015
 
Operating Results:
   Operating Revenues$1,628,626  $1,641,338  $1,243.068  $1,036,500  $959,568  
     
   Income (Loss) from Continuing Operations$77,189  $17,903  $(3,404) $119,061  $105,610  
   Discontinued Operations - Net (1)(272) (240) (86) (251) (503) 
     
      Net Income (Loss)$76,917  $17,663  $(3,490) $118,810  $105,107  
     
Total Assets$6,365,340  $5,956,577  $3,865,086  $3,730,567  $3,480,900  
     
Capitalization:    
   Equity$1,423,785  $1,267,022  $1,192,409  $1,289,240  $1,037,539  
   Long-Term Debt2,070,086  2,106,863  1,122,999  808,005  1,006,394  
     
      Total Capitalization$3,493,871  $3,373,885  $2,315,408  $2,097,245  $2,043,933  
21

 20172016201520142013
      
Operating Results:     
   Operating Revenues$1,243,068
$1,036,500
$959,568
$886,996
$731,421
  
 
 
  
   Operating Income$4,410
$189,276
$156,894
$127,603
$69,636
  
 
 
  
   (Loss) Income from Continuing Operations$(3,404)$119,061
$105,610
$97,628
$82,389
   Discontinued Operations - Net (1)(86)(251)(503)(582)(796)
  
 
 
  
      Net (Loss) Income$(3,490)$118,810
$105,107
$97,046
$81,593
  
 
 
  
Total Assets$3,865,086
$3,730,567
$3,480,900
$3,349,425
$2,924,855
  
 
 
  
Capitalization: 
 
 
  
   Equity$1,192,409
$1,289,240
$1,037,539
$932,432
$827,000
   Long-Term Debt1,122,999
808,005
1,006,394
859,491
680,400
  
 
 
  
      Total Capitalization$2,315,408
$2,097,245
$2,043,933
$1,791,923
$1,507,400
  
 
 
  
Ratio of Earnings to Fixed Charges (2)0.5x5.4x3.8x
3.8x
3.0x
  
 
  
 
Diluted Earnings Per Common Share (Based on Average Diluted Shares Outstanding) (3):     
   Continuing Operations$(0.04)$1.56
$1.53
$1.47
$1.29
   Discontinued Operations - Net (1)—
—
(0.01)(0.01)(0.01)
  
 
  
 
      Diluted Earnings Per Common Share (3)$(0.04)$1.56
$1.52
$1.46
$1.28
  
 
  
 
(Loss) Return on Average Equity (4)(0.3)%10.2%10.7%11.1%10.5%
  
 
  
 
Share Data: 
 
  
 
   Number of Shareholders of Record6.5
6.7
6.7
6.9
6.9
   Average Common Shares (3)79,541
76,362
68,735
66,278
63,978
   Common Shares Outstanding at Year End (3)79,549
79,478
70,966
68,334
65,430
   Dividend Reinvestment Plan: 
 
 
  
      Number of Shareholders5.0
5.2
5.2
5.2
5.2
      Number of Participating Shares (3)3,607
3,627
4,170
4,082
4,118
   Book Value at Year End (3)$14.99
$16.22
$14.62
$13.65
$12.64

     
Diluted Earnings (Loss) Per Common Share (Based on Average Diluted Shares Outstanding) (2):
   Continuing Operations$0.84  $0.21  $(0.04) $1.56  $1.53  
   Discontinued Operations - Net (1)—  —  —  —  (0.01) 
     
   Diluted Earnings (Loss) Per Common Share (2)$0.84  $0.21  $(0.04) $1.56  $1.52  
     
Return (Loss) on Average Equity (3)5.7 %1.5 %(0.3)%10.2 %10.7 %
     
Share Data:    
   Number of Shareholders of Record6.0  6.3  6.5  6.7  6.7  
   Average Common Shares (2)92,130  83,693  79,541  76,362  68,735  
   Common Shares Outstanding at Year End (2)92,394  85,506  79,549  79,478  70,966  
   Dividend Reinvestment Plan:    
      Number of Shareholders4.7  4.8  5.0  5.2  5.2  
      Number of Participating Shares (2)3,228  3,317  3,607  3,627  4,170  
   Book Value at Year End (2)$15.41  $14.82  $14.99  $16.22  $14.62  
   Dividends Declared per Common Share (2)$1.16  $1.13  $1.10  $1.07  $1.02  
   Market Price at Year End (2)$32.98  $27.80  $31.23  $33.69  $23.52  
   Market-to-Book Ratio (2)2.1 x1.9 x2.1 x2.1 x1.6 x
     
Consolidated Economic Earnings (4)    
 Income (Loss) from Continuing Operations$77,189  $17,903  $(3,404) $119,061  $105,610  
Minus/Plus:    
Unrealized Mark-to-Market Losses/(Gains) on Derivatives and Realized Losses/(Gains) on Inventory Injection Hedges14,546  (35,846) 14,558  (26,867) (8,355) 
Net Loss from Affiliated Companies (5)—  —  —  —  (2,540) 
Loss on Property, Plant and Equipment (6)10,745  105,280  91,299  —  —  
Net Losses from Legal Proceedings (7)2,336  5,910  56,075  —  —  
Acquisition/Sale Costs (8)3,468  34,674  19,564  —  —  
Customer Credits (9)—  15,333  —  —  —  
ERIP and OPEB (10)—  6,733  —  —  —  
Other (11)4,179  —  2,227  (165) (165) 
Income Taxes (12)(9,423) (33,753) (70,834) 10,813  4,424  
Additional Tax Adjustments (13)—  —  (11,420) —  —  
Economic Earnings$103,040  $116,234  $98,065  $102,842  $98,974  
     
Earnings (Loss) per Share from Continuing Operations (2)$0.84  $0.21  $(0.04) $1.56  $1.53  
Minus/Plus:        
Unrealized Mark-to-Market Losses/(Gains) on Derivatives and Realized Losses/(Gains) on Inventory Injection Hedges0.16  (0.42) 0.18  (0.35) (0.12) 
Net Loss from Affiliated Companies (5)—  —  —  —  (0.04) 
Loss on Property, Plant and Equipment (6)0.12  1.24  1.14  —  —  
Net Losses from Legal Proceedings (7)0.02  0.07  0.70  —  —  
Acquisition/Sale Costs (8)0.04  0.41  0.25  —  —  
Customer Credits (9)—  0.18  —  —  —  
22

   Dividends Declared per Common Share (3)$1.10
$1.07
$1.02
$0.96
$0.90
   Market Price at Year End (3)$31.23
$33.69
$23.52
$29.46
$27.98
   Market-to-Book Ratio (3)2.1x2.1x1.6x
2.2x
2.2x
  
 
 
  
Consolidated Economic Earnings (5) 
 
 
  
   (Loss) Income from Continuing Operations$(3,404)$119,061
$105,610
$97,628
$82,389
Minus/Plus: 
 
  
 
Unrealized Mark-to-Market Losses/(Gains) on Derivatives and Realized Losses/(Gains) on Inventory Injection Hedges (6)14,558
(26,867)(8,355)8,211
23,422
Net Loss from Affiliated Companies, Not Part of Ongoing Operations (6,7)—
—
—
—
1,252
Net Loss from Affiliated Companies (6,8)—
—
(2,540)2,540
—
Unrealized Loss on Property, Plant and Equipment (9)91,299
—
—
—
—
Net Losses from Legal Proceedings (10)56,075
—
—
—
—
Acquisition Costs (11)19,564
—
—
—
—
Other (6,12)2,227
(165)(165)(165)(165)
Income Taxes (13)(70,834)10,813
4,424
(4,235)(9,804)
Additional Tax Adjustments (14)(11,420)—
—
—
—
Economic Earnings$98,065
$102,842
$98,974
$103,979
$97,094
  
 
  
 
(Loss) Earnings per Share from Continuing Operations (3)$(0.04)$1.56
$1.53
$1.47
$1.29
Minus/Plus: 
 
  
 
Unrealized Mark-to-Market Losses/(Gains) on Derivatives and Realized Losses/(Gains) on Inventory Injection Hedges (6)0.18
(0.35)(0.12)0.12
0.36
Net Loss from Affiliated Companies, Not Part of Ongoing Operations (6,7)—
—
—
—
0.02
Net Loss from Affiliated Companies (6,8)—
—
(0.04)0.04
—
Unrealized Loss on Property, Plant and Equipment (9)1.14
—
—
—
—
Net Losses from Legal Proceedings (10)0.70
—
—
—
—
Acquisition Costs (11)0.25
—
—
—
—
Other (6,12)0.03
—
—
—
—
Income Taxes (13)(0.89)0.13
0.07
(0.06)(0.16)
Additional Tax Adjustments (14)(0.14)—
—
—
—
Economic Earnings per Share (3)$1.23
$1.34
$1.44
$1.57
$1.51
ERIP and OPEB (10)—  0.08  —  —  —  
Other (11)0.04  —  0.03  —  —  
Income Taxes (12)(0.10) (0.39) (0.89) 0.13  0.07  
Additional Tax Adjustments (13)—  —  (0.14) —  —  
Economic Earnings per Share (2,4)$1.12  $1.38  $1.23  $1.34  $1.44  
 
(1)
(1) Represents discontinued business segments: sand mining and distribution operations sold in 1996 and fuel oil operations with related environmental liabilities in 1986 (See Note 3 to the consolidated financial statements).

(2)Calculated as Income from Continuing Operations before Income Taxes and Interest Expense divided by Total Fixed Charges, which consists of Interest Expense and Capitalized Interest.

(3)All share and per share amounts were adjusted for all periods presented for the 2-for-1 stock split, effected in the form of a stock dividend, effective on May 8, 2015. See Note 1 to the consolidated financial statements.

(4)Calculated based on Income from Continuing Operations.


(5)This section includes the non-generally accepted accounting principles (“non-GAAP”) financial measures of Economic Earnings and Economic Earnings per share. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 7 of this Report for a discussion regarding the use of non-GAAP financial measures and a reconciliation of income from Continuing Operations and earnings per share to Economic Earnings and Economic Earnings per share, respectively.

(6)Certain reclassifications have been made to the prior period numbers in these tables to conform to the current period presentation. The 2013-2015 numbers in these line items have been adjusted to be presented before income taxes.

(7)Resulting from the termination of the contract at LVE Energy Partners, LLC to design, build, own and operate a district energy system and central energy center for a planned resort in Las Vegas, Nevada.

(8)Resulting from a reserve for uncollectible accounts recorded by an Energenic subsidiary that owned and operated a central energy center and energy distribution system for a hotel, casino and entertainment complex in Atlantic City, New Jersey (see Note 7 to the consolidated financial statements). In 2014, this charge was excluded from Economic Earnings as the total economic impact of the proceedings had not been realized. During the second quarter 2015, the Company, through its investment in Energenic, reduced the carrying value of the investment in this project. As such, this charge is included in Economic Earnings in 2015.

(9)Represents several impairment charges recorded during the year, including impairments on solar generating facilities, landfill gas-to-energy (LFGTE) long-lived assets, LFGTE assets customer relationships, and goodwill (see Note 1 to the consolidated financial statements). The economic impact of these charges will not be realized until a future period.

(10)Represents net losses from three separate legal proceedings: (a) $55.6 million of pre-tax charges, including interest and legal fees, resulting from a ruling in a legal proceeding related to a pricing dispute between SJI and a gas supplier that began in October 2014; (b) a $9.8 million pre-tax charge, including legal fees, resulting from a settlement with a counterparty over a dispute related to a three-year capacity management contract; and (c) a $9.3 million pre-tax gain resulting from a favorable FERC decision, including interest, over a tariff rate dispute with a counterparty, whereby SJI contended that the counterparty was overcharging for storage demand charges over a ten-year period. See Note 15 to the consolidated financial statements. Since these net losses relate to transactions that primarily occurred in prior periods, these net losses are excluded from Economic Earnings.

(11)
Represents costs incurred on the agreement to acquire the assets of Elizabethtown Gas and Elkton Gas (see Note 1 to the consolidated financial statements). Since the economic impact will not be realized until future periods, this amount is excluded from Economic Earnings.

(12)Included in this amount are amendments made to an existing interest rate derivative linked to unrealized losses previously recorded in Accumulated Other Comprehensive Loss (AOCL), which SJI reclassified from AOCL to Interest Charges on the consolidated statements of income as a result of the prior hedged transactions being deemed probable of not occurring. Since the economic impact will not be realized until future periods, this amount is excluded from Economic Earnings. Also included is additional depreciation expense within Economic Earnings on two solar generating facilities where an impairment charge was recorded in the past, which reduced the depreciable basis and recurring depreciation expense, and the related reduction in depreciation expense is being added back.

(13)Determined using a combined average statutory tax rate of approximately 39% for 2017 and 40% for 2016 and 2015.

(14)Represents one-time tax adjustments, most notably for Tax Reform, which was signed into law in December 2017. See Note 4 to the consolidated financial statements.



(2) All share and per share amounts were adjusted for all periods presented for the 2-for-1 stock split, effected in the form of a stock dividend, effective on May 8, 2015.


(3) Calculated based on Income from Continuing Operations.

(4) This section includes the non-GAAP financial measures of Economic Earnings and Economic Earnings per share. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 7 of this Report for a discussion regarding the use of non-GAAP financial measures and a reconciliation of income from Continuing Operations and earnings per share to Economic Earnings and Economic Earnings per share, respectively.

(5) Resulting from a reserve for uncollectible accounts recorded by an Energenic subsidiary that owned and operated a central energy center and energy distribution system for a hotel, casino and entertainment complex in Atlantic City, New Jersey. In 2014, this charge was excluded from Economic Earnings as the total economic impact of the proceedings had not been realized. During the second quarter 2015, the Company, through its investment in Energenic, reduced the carrying value of the investment in this project. As such, this charge is included in Economic Earnings in 2015.

(6) Represents impairment charges taken as follows: in 2019 on solar generating facilities along with the agreement to sell MTF and ACB, which were both driven by the expected purchase prices being less than the carrying value of the assets; in 2018 on solar generating facilities, which was also primarily driven by the purchase price in the agreement to sell solar assets being less than the carrying amount of the assets, along with LFGTE assets, which was primarily driven by the remaining carrying value of these assets no longer being recoverable; and in 2017 on solar generating facilities, LFGTE long-lived assets, LFGTE intangible assets related to customer relationships, and goodwill.

(7) Represents net losses from three separate legal proceedings: (a) charges in 2017, 2018 and 2019, including interest, legal fees and the realized difference in the market value of the commodity (including financial hedges) resulting from a ruling in a legal proceeding related to a pricing dispute between SJI and a gas supplier that began in October 2014; (b) a charge in 2017, including legal fees, resulting from a settlement with a counterparty over a dispute related to a three-year capacity management contract; and (c) a gain taken in 2017 resulting from a favorable FERC decision, including interest, over a tariff rate dispute with a counterparty, whereby SJI contended that the counterparty was overcharging for storage demand charges over a ten-year period.

(8) Represents costs incurred on the agreement to acquire the assets of ETG and ELK, including legal, consulting and other professional fees, and costs incurred to prepare to exit the TSA. Also included here are costs incurred on the sales of solar projects and the retail gas business of SJE, partially offset by gains recorded on the sale of solar assets and sales of certain SRECs.

(9) Represents credits to ETG and ELK customers that were required as part of the Acquisition.

(10) Represents costs incurred on the Company's ERIP as well as the benefit of amending the Company's OPEB.

(11) Represents severance and other employee separation costs taken in 2019. Included in this amount in 2017 are amendments made to an existing interest rate derivative linked to unrealized losses previously recorded in AOCL.

(12) Determined using a combined average statutory tax rate of approximately 26% for 2019, 25% for 2018, 39% for 2017, 40% for 2016 and 2015.

(13) Represents one-time tax adjustments, most notably for Tax Reform.

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South Jersey Gas Company
Year Ended December 31,

The following financial data has been obtained from SJG’s financial statements (in thousands, except for ratios and customers):


 Year Ended December 31,
 20192018201720162015
Operating Revenues$569,226  $548,000  $517,254  $461,055  $534,290  
Net Income$87,394  $82,949  $72,557  $69,045  $66,578  
Average Shares of Common Stock Outstanding2,339  2,339  2,339  2,339  2,339  

 As of December 31,
 20192018201720162015
Property, Plant and Equipment, Net$2,596,102  $2,383,459  $2,154,083  $1,952,912  $1,770,766  
Total Assets$3,348,555  $3,118,236  $2,865,974  $2,551,923  $2,288,204  
Capitalization:  
Common Equity$1,089,898  $1,008,022  $921,433  $839,900  $707,927  
Long-Term Debt547,161  874,507  758,052  423,177  584,082  
Total Capitalization$1,637,059  $1,882,529  $1,679,485  $1,263,077  $1,292,009  
Total Customers397,090  391,092  383,633  377,625  373,100  


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 Year Ended December 31,
 2017 2016 2015 2014 2013
Operating Revenues$517,254
 $461,055
 $534,290
 $501,875
 $446,480
          
Operating Income136,487
 $122,455
 $119,585
 $113,690
 $105,822
          
Net Income$72,557
 $69,045
 $66,578
 $66,483
 $62,236
          
Average Shares of Common Stock Outstanding2,339
 2,339
 2,339
 2,339
 2,339
          
Ratio of Earnings to Fixed Charges (1)5.4x
 5.5x
 5.4x
 5.4x
 5.3x


 As of December 31,
 2017 2016 2015 2014 2013
Property, Plant and Equipment, Net$2,154,083
 $1,952,912
 $1,770,766
 $1,589,369
 $1,424,775
          
Total Assets$2,865,974
 $2,551,923
 $2,288,204
 $2,185,672
 $1,909,126
          
Capitalization:         
Common Equity$921,433
 $839,900
 $707,927
 $680,568
 $610,969
Long-Term Debt758,052
 423,177
 584,082
 507,091
 454,000
Total Capitalization$1,679,485
 $1,263,077
 $1,292,009
 $1,187,659
 $1,064,969
          
Total Customers383,633
 377,625
 373,100
 366,854
 362,256

(1) The ratio of earnings to fixed charges represents, on a pre-tax basis, the number of times earnings cover fixed charges. Earnings consist of net income, to which has been added fixed charges and taxes based on income of SJG. Fixed charges consist of interest charges and capitalized interest.


Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations


Introduction


Management's Discussion and Analysis of Financial Condition and Results of Operations (Management’s Discussion) analyzes the financial condition, results of operations and cash flows of South Jersey Industries, Inc. (SJI)SJI and its subsidiaries. It also includes management’s analysis of past financial results and potential factors that may affect future results, potential future risks and approaches that may be used to manage them. Except where the content clearly indicates otherwise, “SJI,” “we,” “us” or “our” refers to the holding company or the consolidated entity of SJI and all of its subsidiaries.


Management's Discussion is divided into the following two major sections:


•SJI - This section describes the financial condition and results of operations of South Jersey Industries, Inc.SJI and its subsidiaries on a consolidated basis. It includes discussions of our regulated operations, including South Jersey Gas Company (SJG),SJG, and our non-regulated operations.


•SJG - This section describes the financial condition and results of operations of SJG, a subsidiary of SJI and separate registrant, which comprises the gasSJG utility operations segment.


Both sections of Management's Discussion - SJI and SJG - are designed to provide an understanding of each company's respective operations and financial performance and should be read in conjunction with each other as well as in conjunction with the respective company's financial statements and the combined Notes to Consolidated Financial Statements in this Annual Report on Form 10-K.


Unless otherwise noted, earnings per share amounts are presented on a diluted basis, and are based on weighted average common and common equivalent shares outstanding.



OVERVIEW - South Jersey Industries, Inc. (SJI orSJI (or the Company) is an energy services holding company that provides a variety of products and services through the following direct or indirect wholly-owned subsidiaries:


South Jersey Gas Company (SJG)SJIU


SJIU was established as a subsidiary of SJI for the purpose of serving as a holding company that owns SJG, ETG and ELK.

SJG

SJG, a New Jersey corporation, is an operating public utility company engaged in the purchase, transmission and sale of natural gas for residential, commercial and industrial use. SJG also sells natural gas and pipeline transportation capacity (off-system sales) on a wholesale basis to various customers on the interstate pipeline system and transports natural gas purchased directly from producers or suppliers to their customers. SJG contributed approximately $72.6$87.4 million to SJI's net income on a consolidated basis in 2017.2019.


SJG's service territory covers approximately 2,500 square miles in the southern part of New Jersey. It includes 115117 municipalities throughout Atlantic, Cape May, Cumberland and Salem Counties and portions of Burlington, Camden and Gloucester Counties, with an estimated permanent population of 1.2 million.Counties. SJG benefits from its proximity to Philadelphia, PA and Wilmington, DE on the western side of its service territory and the popular shore communities on the eastern side. Continuing expansion of SJG's infrastructure throughout its seven-county region has fueled annual customer growth and creates opportunities for future extension into areas not yet served by natural gas.


SJG believes there is an ongoing transition of southern New Jersey's oceanfront communities from seasonal resorts to year round economies. In mainland communities, building expansions in the medical, education and retail sectors contributed to SJG's growth. At present, SJG serves approximately 71%79% of households within its territory with natural gas. SJG also serves southern New Jersey's diversified industrial base that includes processors of petroleum and agricultural products; chemical, glass and consumer goods manufacturers; and high technology industrial parks.




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As of December 31, 2017,2019, SJG served 383,633397,090 residential, commercial and industrial customers in southern New Jersey, compared with 377,625391,092 customers at December 31, 2016.2018.  No material part of SJG's business is dependent upon a single customer or a few customers. Gas sales, transportation and capacity release for 20172019 amounted to 151.3162.9 MMdts, of which 54.355.6 MMdts were firm sales and transportation, 1.1 MMdts were interruptible sales and transportation and 95.9106.2 MMdts were off-system sales and capacity release. The breakdown of firm sales and transportation includes 43.7%46.8% residential, 21.6%23.0% commercial, 20.9%18.3% industrial, and 13.8%11.9% cogeneration and electric generation. As of December 31, 2017,2019, SJG served 358,026370,693 residential customers, 25,18425,985 commercial customers and 423412 industrial customers.  This includes 20172019 net additions of 5,5995,684 residential customers and 409314 commercial and industrial customers.


SJG makes wholesale gas sales to gas marketers for resale and ultimate delivery to end users. These “off-system” sales are made possible through the issuance of the Federal Energy Regulatory Commission (FERC)FERC Orders No. 547 and 636. Order No. 547 issued a blanket certificate of public convenience and necessity authorizing all parties, which are not interstate pipelines, to make FERC jurisdictional gas sales for resale at negotiated rates, while Order No. 636 allowed SJG to deliver gas at delivery points on the interstate pipeline system other than its own city gate stations and release excess pipeline capacity to third parties. During 2017,2019, off-system sales amounted to 25.614.7 MMdts and capacity release amounted to 70.391.5 MMdts.


Supplies of natural gas available to SJG that are in excess of the quantity required by those customers who use gas as their sole source of fuel (firm customers) make possible the sale and transportation of gas on an interruptible basis to commercial and industrial customers whose equipment is capable of using natural gas or other fuels, such as fuel oil and propane. The term “interruptible” is used in the sense that deliveries of natural gas may be terminated by SJG at any time if this action is necessary to meet the needs of higher priority customers as described in SJG's tariffs. In 2017,2019, usage by interruptible customers, excluding off-system customers, amounted to 1.1 MMdts, or approximately 1% of the total throughput.


SouthETG/ELK

On July 1, 2018, SJI, through its wholly-owned subsidiary SJIU, acquired the assets of ETG and ELK from Pivotal Utility Holdings, Inc., a subsidiary of Southern Company Gas (see Note 20 to the consolidated financial statements).

ETG is a regulated natural gas utility which distributes natural gas in seven counties in northern and central New Jersey. ETG serves residential, business and industrial customers, with a service territory that covers the northern part of New Jersey, Energy Solutions, LLCincluding municipalities throughout Union, Middlesex, Sussex, Warren, Hunterdon, Morris and Mercer Counties. ETG was founded in 1855 and is based in Union, New Jersey. ETG contributed net income of approximately $34.2 million during 2019.


ETG believes growth exists in the expansion of its Northwestern service territory, the Franklin/Sparta area, and the Hackettstown Interconnect. ETG also serves northern New Jersey's diversified industrial base within its territory with natural gas, which includes pharmaceutical, food and beverage, and transportation industries.

As of December 31, 2019, ETG served 297,191 customers in northern and central New Jersey, including 273,696 residential customers, 23,398 commercial customers and 97 industrial customers.  No material part of ETG's business is dependent upon a single customer or a few customers. Gas sales and transportation for 2019 amounted to 511.5 MMdts, of which 442.6 MMdts were firm sales and transportation and 68.9 MMdts were interruptible sales and transportation. The breakdown of firm sales and transportation includes 241.4 MMdts residential, 147.0 MMdts commercial, and 123.1 MMdts industrial.

ELK is a regulated natural gas utility which distributes natural gas in northern Maryland, specifically its service territory in Elkton, Maryland. ELK's diverse customer base includes residential and commercial accounts coupled with a significant industrial presence in the military and defense, pharmaceutical, chemical and textile industries. ELK contributed net income of approximately $0.6 million during 2019.

In December 2019, the Company announced it had entered into an agreement to sell ELK to a third-party buyer pending MPSC approval. This transaction is expected to close in the middle of 2020. See Note 1 to the consolidated financial statements.

SJES

SJI groups its nonutility operations into two categories: Energy Group and Energy Services. Energy Group includes wholesale energy, retail gas and other, and retail electric operations. Energy Services includes on-site energy production and appliance service operations. SJI established South Jersey Energy Solutions, LLC (SJES)SJES as a direct subsidiary for the purpose of serving as a holding company for all of SJI's non-utility businesses. The following businesses are wholly-owned subsidiaries of SJES:


South Jersey Energy Company (SJE)

26

SJE

SJE provides services for the acquisition and transportation of natural gas and electricity for retail end users and markets total energy management services. SJE markets natural gas and electricity to residential, commercial and industrial customers. SJE became active in the residential market for electricity beginning in March 2016 as a result of several municipal aggregation bids won in the second half of 2015. Most customers served by SJE are located within New Jersey, northwestern Pennsylvania and New England. In 2017,2019, SJE contributedhad a net loss of approximately $1.3$2.4 million towhich reduced SJI's net income on a consolidated basis.basis by such amount.


South Jersey Resources Group, LLC (SJRG)On November 30, 2018, SJI sold the retail gas business of SJE for total consideration of $15.0 million. As a result, SJE no longer acquires, transports or markets natural gas for retail markets. See Note 1 to the consolidated financial statements.


SJRG

SJRG markets natural gas storage, commodity and transportation assets along with fuel management services on a wholesale basis. Customers include energy marketers, electric and gas utilities, power plants and natural gas producers. SJRG's marketing activities occur mainly in the mid-Atlantic, Appalachian and southern regions of the country.


SJRG also conducts price risk management activities by entering into a variety of physical and financial transactions including forward contracts, swap agreements, option contracts and futures contracts. In 2017,2019, SJRG had a net loss ofcontributed approximately $23.5$1.4 million which reducedto SJI's net income on a consolidated basis by such amount.basis.


South Jersey Exploration, LLC (SJEX)SJEX


SJEX owns oil, gas and mineral rights in the Marcellus Shale region of Pennsylvania. SJEX is a wholly-owned subsidiary of SJES and is also considered part of SJI's wholesale energy operations. In 2017,2019, SJEX contributed approximately $0.2 million to SJI's net income on a consolidated basis.


Marina Energy LLC (Marina)


Marina develops and operates on-site energy-related projects. Marina's largest wholly-owned operating project, providesin 2019 and prior, was MTF, which provided cooling, heating and emergency power to the Borgata Hotel Casino & Spa in Atlantic City, NJ.  Marina also owns numerous solar generation projects.


Other entities that are wholly owned by Marina are ACB, Energy Partners, LLC (ACB), AC Landfill Energy, LLC (ACLE), BC Landfill Energy, LLC (BCLE), SC Landfill Energy, LLC (SCLE), SX Landfill Energy, LLC (SXLE), MCS Energy Partners, LLC (MCS), NBS Energy Partners, LLC (NBS) & SBS Energy Partners, LLC (SBS).ACLE, BCLE, SCLE, and SXLE.


ACB, ownsin 2019 and operatesprior, owned and operated a natural gas fueled combined heating, cooling and power facility located in Atlantic City, New Jersey.


ACLE, BCLE, SCLE and SXLE own and operate landfill gas-to-energy production facilities in Atlantic, Burlington, Salem and Sussex Counties in New Jersey.


On February 18, 2020, the Company sold MTF and ACB for a final sales price of $97.0 million. See Notes 1 and 22 to the consolidated financial statements.

On June 27, 2018, the Company, through its wholly-owned subsidiary, Marina, entered into a series of agreements whereby Marina agreed to sell its portfolio of solar energy assets (the “Transaction”) to a third-party buyer. As part of the Transaction, Marina agreed to sell its distributed solar energy projects across New Jersey, Maryland, Massachusetts and Vermont (the “Projects”), along with the assets comprising the Projects. Also in connection with the Transaction, Marina is leasing back from the buyer certain of the Projects that have not yet passed the fifth anniversary of their placed-in-service dates for U.S. federal income tax purposes. The leaseback will run from the date each such project was acquired by the buyer until the later of the first anniversary of the applicable acquisition date and the fifth anniversary of the applicable placed-in-service date of the project. In July 2018, as part of the Transaction, Marina received a cash payment of $62.5 million for the sale of certain SRECs. During the fourth quarter of 2018, the Company closed on the majority of these Projects, including the wholly-owned subsidiaries MCS, NBS and SBS, own and operate solar-generation sites locatedwith each project sold having met all conditions to satisfy closing. Total consideration received in New Jersey.the fourth quarter 2018 related to these sales was $228.1 million. During 2019, seven Projects were sold for total consideration of $24.3 million. The Company has three projects that are not part of the Transaction but are expected to be sold in 2020. The value of these unsold assets is $27.2 million.


27

The Company also received $2.5 million in 2019 for completion of remaining performance obligations from a separate sale of a solar project that occurred in 2018.

In 2017,2019, Marina had a net loss of approximately $60.5$9.2 million, which reduced SJI's net income on a consolidated basis by such amount.


South Jersey Energy Service Plus, LLC (SJESP)SJESP


SJESP serviced residential and small commercial HVAC systems, installed small commercial HVAC systems, provided plumbing services and serviced appliances under warranty via a subcontractor arrangement as well as on a time and materials basis. On September 1, 2017, SJESP sold certain assets of its residential and small commercial HVAC and plumbing business to a third party. SJESP will receivereceives commissions paid on service contracts from thea third party on a go forward basis. This transaction did not have a material impact on the consolidated financial statements.party. In 2017,2019, SJESP contributed approximately $0.2$1.7 million to SJI's net income on a consolidated basis.


SJI Midstream, LLC (Midstream)SJEI


Midstream owns a 20% equity investment in PennEast Pipeline Company, LLC, through which SJI, along with other investors, expect to constructSJEI provides energy procurement and cost reduction services. Included within SJEI is AEP, an approximately 118-mile natural gas pipeline that will extend from Northeastern Pennsylvania into New Jersey. Construction is expected to begin in 2018aggregator, broker and is estimated to be completedconsultant in the second half ofretail energy markets, which was acquired in August 2019. In 2017, Midstream2019, SJEI contributed approximately $4.6$0.1 million to SJI's net income on a consolidated basis.


OtherMidstream


Energy & Minerals, Inc. (EMI)Midstream owns a 20% equity investment, along with four other investors, in PennEast. In 2019, Midstream contributed approximately $4.2 million to SJI's net income on a consolidated basis.

Other

EMI principally manages liabilities associated with its discontinued operations of nonutility subsidiaries.

In October 2017, SJI announced that it had entered into agreements to acquire the assets of Elizabethtown Gas and Elkton Gas from Pivotal Utility Holdings, Inc., a subsidiary of Southern Company Gas. SJI is acquiring the assets of both companies for total consideration of $1.7 billion. The transaction is expected to close in mid-2018, and is subject to approvals by the New Jersey Board of Public Utilities (BPU) and the Maryland Public Service Commission (PSC), with limited approvals also required from the Federal Energy Regulatory Commission (FERC) and the Federal Communications Commission (FCC), as well as certain anti-trust filings and approvals. Costs incurred through December 31, 2017 were $12.0 million, after-tax, which reduced SJI's net income on a consolidated basis by such amount.


Primary Factors Affecting SJI's Business


SJI's statedcurrent long-term goals are to: 1) Growto grow Economic Earnings to $160 millionPer Share 6-8% annually driven by 2020; 2) Improve thehigh quality of earnings; 3) Maintain the strength of theearnings, a strong balance sheet;sheet and 4) Maintain a low-to-moderate risk profile. Management established those goals in conjunction with SJI's Board of Directors based upon a number of different internal and external factors that characterize and influence SJI's current and expected future activities.



The following is a summary of the primary factors we expect to have the greatest impact on SJI's performance and ability to achieve the long-term goals going forward:


Business Model - In developing SJI's current business model, our focus has been on our core utilityUtilities and natural extensions of that business.those businesses. That focus enables us to concentrate on business activities that match our core competencies. Going forward we expect to pursue business opportunities that fit this model.


Customer Growth - Southern New Jersey, ourSJG's primary area of operations, has not been immune to the issues impacting the new housing market nationally. Residential new construction activity remains steady, supported by growth in higher density and multi-family units. Customers for SJG grew 1.6%1.5% for 20172019 as SJG continues its focus on customer conversions.  In 2017, the 6,1082019, consumers converting their homes and businesses from other heating fuels, such as electric, propane or oil, represented approximately 71% of the total new customer acquisitions for the year. In comparison, conversions over the past five years averaged 5,480 annually.  Customers in SJG's service territory typically base their decisions to convert on comparisons of fuel costs, environmental considerations and efficiencies. While oil and propane prices have become more competitive with natural gas in the past two years, affecting the number of conversions, SJG began a comprehensive partnership with the State’s Office of Clean Energy to educate consumers on energy efficiency and to promote the rebates and incentives available to natural gas users.


Central and Northern NJ, ETG's primary area of operations continues to grow in multifamily housing and gas infrastructure extensions to unserved areas.  While ETG continues to partner with builders in the new construction sector with the view of increasing natural gas burner tips, ETG is pursuing conversions throughout its service territory.  As a result, customer additions for ETG grew approximately 1.2%.  In 2019, consumers converting their homes and businesses from other heating fuels, such as electric, propane or oil, represented approximately 43% of the total new customer acquisitions for the year.  Customers in ETG service territories typically base their decisions to convert on fuel cost savings, efficiencies, and fuel stability pricing.  ETG leverages its comprehensive partnership with the State’s Office of Clean Energy to educate consumers on energy efficiency and to promote the rebates and incentives available to natural gas users.

28

Regulatory Environment - SJG isand ETG are primarily regulated by the New Jersey Board of Public Utilities (BPU).BPU; ELK is regulated by the MPSC. The BPU approvesBPU/MPSC approve the rates that SJG charges itsare charged to rate-regulated customers for services provided and the terms of service under which SJG operates.the Utilities operate. The rates and established terms of service are designed to enable SJGthe Utilities to recover costs of service and obtain a fair and reasonable return on capital invested.

SJG’s BPU approved Conservation Incentive Program (CIP), effective October 1, 2006,CIP protects SJG's net income from severe fluctuations in gas used by residential, commercial and small industrial customers. In addition, in February 2013, the BPU issued an Order approving the Accelerated Infrastructure Replacement Program (AIRP),SJG's AIRP is a $141.2 million program to replace cast iron and unprotected bare steel mains and services over a four -year period. As of December 1, 2016, allservices. All AIRP investments are reflected in base rates. Additionally, the BPU issued an Order approving an extension of the AIRP for a 5-yearfive-year period (“AIRP II”), commencing October 1, 2016, with authorized investments of up to $302.5 million to continue replacing cast iron and unprotected bare steel mains and associated services. SJG earns a return on AIRP II investments once they are placed in service and, thereafter, once they are included in rate base, through annual filings. The BPU also issued an Order in August 2014 approving the Storm Hardening and Reliability Program (SHARP),SJG's SHARP is a $103.5 million program to replace low-pressure distribution mains and services with high-pressure mains and services in coastal areas that are susceptible to flooding during major storms over a three-year period.storms. In September 2017, TheMay 2018, the BPU issued an Orderorder approving an increase in annual revenues from base ratesa second phase of $3.6the SHARP ("SHARP II") for a three-year period, commencing June 1, 2018, with authorized investments of up to $100.3 million to reflectcontinue storm hardening efforts to further improve safety, redundancy and resiliency of SJG’s natural gas system in coastal areas. Pursuant to the roll-inorder, SHARP II investments are to be recovered through annual base rate adjustments.

Pursuant to our AIRP extension order in 2016, SJG is required to file a base rate case no later than November 2020. SJG expects to file a base rate case in early 2020.

Consistent with Acquisition approval, SJI was required to develop a plan, in concert with the BPU and the New Jersey Division of $33.3Rate Counsel, to address the replacement of ETG's aging infrastructure. In June 2019, the BPU approved a $300.0 million SHARPIIP effective July 1, 2019. The Order authorized the recovery of costs associated with ETG’s investments made from July 2016of approximately $300.0 million between 2019-2024 to replace its cast-iron and bare steel vintage main and related services. The Order provides for annual recovery of ETG's investments through June 2017, effective October 1, 2017. a separate rate mechanism.

In November 2017, SJGApril 2019, ETG filed a petition with the BPU to continue its storm hardening program, proposing a three-year effort and total investment of $110.25 million. SJG proposed to recover the SHARP II through annual base rate adjustments, with no impact to customers billing until October 2019. The related petition is currently pending BPU approval.

Effective November 1, 2017, the BPU grantedrequesting a base rate revenue increase to recognize the infrastructure investments made to maintain the safety and reliability of $39.5its natural gas system. In November 2019, the BPU issued an Order that permitted ETG to increase base rate revenues by $34.0 million (seewith new rates in effect November 15, 2019. The Order also provides for an overall after-tax rate of return of approximately 6.5%, with a return on equity of approximately 9.6% and a common equity component of approximately 51.5%.

For more information on the regulatory environments of the Utilities, see Note 10 to the consolidated financial statements).statements.


Weather Conditions and Customer Usage Patterns - Usage patterns can be affected by a number of factors, such as wind, precipitation, temperature extremes and customer conservation. SJG's earnings are largely protected from fluctuations in temperatures by the CIP. The CIP has a stabilizing effect on utility earnings as SJG adjusts revenues when actual usage per customer experienced during an annual period varies from an established baseline usage per customer. The WNC rate allows ETG to implement surcharges or credits during the months of October through May to compensate for weather-related changes in customer usage from the previous winter period. Our nonutility retail marketing business is directly affected by weather conditions, as it does not have regulatory mechanisms that address weather volatility. The impact of different weather conditions on the earnings of our nonutility businesses is dependent on a range of different factors. Consequently, weather may impact the earnings of SJI's various subsidiaries in different, or even opposite, ways. Further, the profitability of individual subsidiaries may vary from year-to-year despite experiencing substantially similar weather conditions.


Changes in Natural Gas and Electricity and Solar Renewable Energy Credit (SREC) Prices - The utility'sUtilities' gas costs are passed on directly to customers without any profit margin added by SJG.added. The price the utility charges itsUtilities charge their periodic customers is set annually, with a regulatory mechanism in place to make limited adjustments to that price during the course of a year. In the event that gas cost increases would justify customer price increases greater than those permitted under the regulatory mechanism, SJGthe Utilities can petition the BPUBPU/MPSC for an incremental rate increase. High prices can make it more difficult for SJG's customers to pay their bills and may result in elevated levels of bad-debt expense. Among our nonutility activities, the business most likely to be impacted by changes in natural gas prices is our wholesale gas marketing business. Wholesale gas marketing typically benefits from volatility in gas prices during different points in time. The actual price of the commodity does not typically have an impact on the performance of this business line.  Our ability to add and retain customers at our retail marketing business is affected by the relationship between the price that the utility charges customers for gas or electric and the cost available in the market at specific points in time.  However, retail marketing accounts for a very small portion of SJI's overall activities. Marina Energy’s SREC portfolio typically benefits


from increases in individual SREC spot markets for any current or future energy year.  Positive spot market movement affords Marina a potential opportunity to sell open production and improve upon or solidify future SREC revenue streams for particular SREC products. 
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Fuel Supply Management - SJRG has acquired pipeline transportation capacity that allows SJRG to match end users, many of which are merchant generators, with producers looking to find a long-term solution for their supply. We currently have elevennine fuel supply management transactions under contractcontracts and expect to continue expanding this business.


PennEast - Midstream Investments - Design, engineeringhas a 20% investment in PennEast. The following events have occurred on PennEast in recent months:

•On September 10, 2019, the U.S. Court of Appeals for the Third Circuit ruled that PennEast does not have eminent domain authority over NJ state-owned lands. A Petition for Rehearing En Banc was denied by the U.S. Court of Appeals for the Third Circuit on November 5, 2019.
•On October 8, 2019, the NJDEP denied and environmental assessments continue moving forwardclosed PennEast’s application for several permits without prejudice, citing the Third Circuit Court decision. On October 11, 2019, PennEast submitted a letter to the NJDEP objecting to its position that the application is administratively incomplete. PennEast's objections were rejected by the NJDEP on November 18, 2019.
•In December 2019, PennEast asked the FERC for a natural gastwo-year extension to construct the pipeline.
•On January 30, 2020, the FERC voted to approve PennEast’s petition for a declaratory order and expedited action requesting that the body issue an order interpreting the Natural Gas Act’s eminent domain authority. On the same day, PennEast filed an amendment with FERC to construct PennEast in two phases. Phase one consists of construction of a pipeline in Pennsylvania from the eastern Marcellus Shale region in Luzerne County that would terminate in Northampton County. Phase two includes construction of the remaining original certificated route in Pennsylvania and New Jersey. InConstruction is expected to begin following approval by FERC of the phased approach and receipt of any remaining governmental and regulatory permits.
•On February 18, 2020, PennEast filed a Petition for a Writ of Certiorari with the Supreme Court of the United States to review the September 2015, Midstream,10, 2019 Third Circuit decision.
•On February 20, 2020, FERC granted PennEast’s request for a two-year extension to complete the construction of the pipeline.

PennEast management remains committed to pursuing the project and intends to pursue all available options. SJI, along with the other partners, in the project, submitted an applicationare intending to FERC for a permitcontinue to proceed with construction. In January 2018, the Certificate of Public Convenience and Necessity was approved by the FERC. This authorizes PennEast, of which Midstream has a 20% equity interest, to construct, install, own, operate and maintain this pipeline. In February 2018, the New Jersey Department of Environmental Protection filed a motioncontribute to the FERC for reconsideration of this approval. We expectproject. See Note 3 to make additional investments in similar midstream projects.the consolidated financial statements.
 
Changes in Interest Rates - SJI has operated in a relatively low interest rate environment over the past several years. Rising interest rates would raise the expense associated with existing variable-rate debt and all issuances of new debt. We have sought to mitigate the impact of a potential rising rate environment by directly issuing fixed-rate debt, or by entering into derivative transactions to hedge against rising interest rates.


Labor and Benefit Costs - Labor and benefit costs have a significant impact on SJI's profitability. Benefit costs, especially those related to pension and health care, have risen in recent years. We seek to manage these costs by revising health care plans offered to existing employees, capping postretirement health care benefits, and changing health care and pension packages offered to new hires. In addition, in 2018, the Company offered an ERIP to non-union, non-Officer employees over the age of 55 years old with 20 or more years of service to the Company as well as to Officers over the age of 55 years old with 5 or more years of service to the Company (see Note 1 to the consolidated financial statements). We expect savings from these changes to gradually increase as new hires replace retiring employees. SJI's workforce totaled approximately 7601,100 employees at the end of 2017,2019, approximately 530450 of which were SJG employees. Of that total, approximately 300those totals, 495 of both SJISJI's employees are unionized and 319 SJG employees are unionized (all of SJI's unionized employees are with SJG)SJG or ETG).


Balance Sheet Strength - SJI's and SJG's goal is to maintain a strong balance sheet. SJI's average equity-to-capitalization ratio was approximately 47%32% and 48%33% as calculated for the four quarters of 20172019 and 2016,2018, respectively. SJG's average equity-to-capitalization ratio was approximately 54%51% and 52% as calculated for the four quarters of 20172019 and 2016,2018, respectively. A strong balance sheet assists us in maintaining the financial flexibility necessary to take advantage of growth opportunities and to address volatile economic and commodity markets while maintaining a low-to-moderate risk platform.


CRITICAL ACCOUNTING POLICIES - ESTIMATES AND ASSUMPTIONS - As described in the notes to our consolidated financial statements, management must make estimates and assumptions that affect the amounts reported in the consolidated financial statements and related disclosures. Actual results could differ from those estimates. FiveCertain types of transactions presented in our consolidated financial statements require a significant amount of judgment and estimation. These relate to regulatory accounting, derivatives, environmental remediation costs, pension and other postretirement benefit costs, revenue recognition, goodwill, and revenue recognition.evaluation of equity method investments for other-than-temporary impairment.



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Regulatory Accounting (see Notes 10 & 11 to the consolidated financial statements) - SJI's largest subsidiary, SJG, maintains itsThe Utilities maintain their accounts according to the Uniform System of Accounts as prescribed by the BPU.BPU (SJG and ETG) or the MPSC (ELK). As a result of the ratemaking process, SJG isthe Utilities are required to follow Financial Accounting Standards Board (FASB)FASB ASC Topic 980 - “Regulated Operations.Operations,” SJG is required under Topic 980which requires them to recognize the impact of regulatory decisions on itstheir financial statements. SJG isThe Utilities are required under its Basic Gas Supply Service (BGSS) clausetheir BGSS clauses to forecast itstheir natural gas costs and customer consumption in setting itstheir rates. Subject to BPUregulator approval, SJG isthey are able to recover or return the difference between gas cost recoveries and the actual costs of gas through a BGSS charge to customers. SJG recordsThe Utilities record any over/under recoveries as a regulatory asset or liability on the consolidated balance sheets and reflectsreflect them in the BGSS charge to customers in subsequent years. SJGThe Utilities also entersenter into derivatives that are used to hedge natural gas purchases. The offset to the resulting derivative assets or liabilities is recorded as a regulatory asset or liability on the consolidated balance sheets. See additional detailed discussions on Rates and Regulatory Actions in Note 10 to the consolidated financial statements.
 
Derivatives (see Notes 16 & 17 to the consolidated financial statements) - SJI recognizes assets or liabilities for contracts that qualify as derivatives that are entered into by its subsidiaries when such contracts are executed. We record contracts at their fair value in accordance with FASB ASC Topic 815 - “Derivatives and Hedging.”  We record changes in the fair value of the effective portion of derivatives qualifying as cash flow hedges, net of tax, in Accumulated Other Comprehensive Loss (AOCL)AOCL and recognize such changes in the income statement when the hedged item affects earnings. Changes in the fair value of derivatives not designated as hedges are recorded in earnings in the current period. Currently we do not have any energy-related derivative instruments designated as cash flow hedges. Hedge accounting has been discontinued for the remaining interest rate derivatives. As a result, unrealized gains and losses on these derivatives, that

were previously recorded in AOCL on the consolidated balance sheets, are being recorded into earnings over the remaining life of the derivative.


Certain derivatives that result in the physical delivery of the commodity may meet the criteria to be accounted for as normal purchases and normal sales, if so designated, in which case the contract is not marked-to-market, but rather is accounted for when the commodity is delivered. Due to the application of regulatory accounting principles generally accepted in the United States of America (GAAP),GAAP, derivatives related to SJG's gas purchases that are marked-to-market are recorded through the BGSS.  SJG periodically enters into financial derivatives to hedge against forward price risk. These derivatives are recorded at fair value with an offset to regulatory assets and liabilities through SJG's BGSS, subject to BPU approval (See Notes 10 and 11 to the consolidated financial statements). We adjust the fair value of the contracts each reporting period for changes in the market.  


As discussed in Notes 16 and 17 of the consolidated financial statements, energy-related derivative instruments are traded in both exchange-based and non-exchange-based markets. Exchange-based contracts are valued using unadjusted quoted market sources in active markets and are categorized in Level 1 in the fair value hierarchy established by FASB ASC Topic 820 - “Fair Value Measurements and Disclosures.” Certain non-exchange-based contracts are valued using indicative price quotations available through brokers or over-the-counter, on-line exchanges and are categorized in Level 2. These price quotations reflect the average of the bid-ask mid-point prices and are obtained from sources that management believes provide the most liquid market.  Management reviews and corroborates the price quotations with at least one additional source to ensure the prices are observable market information, which includes consideration of actual transaction volumes, market delivery points, bid-ask spreads and contract duration. Derivative instruments that are used to limit our exposure to changes in interest rates on variable-rate, long-term debt are valued using quoted prices on commonly quoted intervals, which are interpolated for periods different than the quoted intervals, as inputs to a market valuation model. Market inputs can generally be verified and model selection does not involve significant management judgment, as a result, these instruments are categorized in Level 2 in the fair value hierarchy. For non-exchange-based derivatives that trade in less liquid markets with limited pricing information, model inputs generally would include both observable and unobservable inputs.  In instances where observable data is unavailable, management considers the assumptions that market participants would use in valuing the asset or liability.  This includes assumptions about market risks such as liquidity, volatility and contract duration.  Such instruments are categorized in Level 3 in the fair value hierarchy as the model inputs generally are not observable. Counterparty credit risk and the credit risk of SJI, are incorporated and considered in the valuation of all derivative instruments as appropriate. The effect of counterparty credit risk and the credit risk of SJI on the derivative valuations is not significant.


Significant Unobservable Inputs - Management uses the discounted cash flow model to value Level 3 physical and financial forward contracts, which calculates mark-to-market valuations based on forward market prices, original transaction prices, volumes, risk-free rate of return and credit spreads. Inputs to the valuation model are reviewed and revised as needed, based on historical information, updated market data, market liquidity and relationships, and changes in third party pricing sources. The validity of the mark-to-market valuations and changes in these values from period to period are examined and qualified against historical expectations by the risk management function. If any discrepancies are identified during this process, the mark-to-market valuations or the market pricing information is evaluated further and adjusted, if necessary.


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Level 3 valuation methods for natural gas derivative contracts include utilizing another location in close proximity adjusted for certain pipeline charges to derive a basis value. The significant unobservable inputs used in the fair value measurement of certain natural gas contracts consist of forward prices developed based on industry-standard methodologies. Significant increases (decreases) in these forward prices for purchases of natural gas would result in a directionally similar impact to the fair value measurement and for sales of natural gas would result in a directionally opposite impact to the fair value measurement. Level 3 valuation methods for electric represent the value of the contract marked to the forward wholesale curve, as provided by daily exchange quotes for delivered electricity. The significant unobservable inputs used in the fair value measurement of electric contracts consist of fixed contracted electricalelectric load profiles; therefore, no change in unobservable inputs would occur. Unobservable inputs are updated daily using industry-standard techniques. Management reviews and corroborates the price quotations to ensure the prices are observable which includes consideration of actual transaction volumes, market delivery points, bid-ask spreads and contract duration.


Environmental Remediation Costs (see Note 15 to the consolidated financial statements) - We estimate a range of future costs based on projected investigation and work plans using existing technologies. In preparing consolidated financial statements, SJI records liabilities for future costs using the lower end of the range because a single reliable estimation point is not feasible due to the amount of uncertainty involved in the nature of projected remediation efforts and the long period over which remediation efforts will continue. We update estimates each year to take into account past efforts, changes in work plans, remediation technologies, government regulations and site specific requirements (see Note 15 to the consolidated financial statements).requirements.



Pension and Other Postretirement Benefit Costs (see Note 12 to the consolidated financial statements) - The costs of providing pension and other postretirement employee benefits are impacted by actual plan experience as well as assumptions of future experience. Employee demographics, plan contributions, investment performance, and assumptions concerning mortality, return on plan assets, discount rates and health care cost trends all have a significant impact on determining our projected benefit obligations. We evaluate these assumptions annually and adjust them accordingly. These adjustments could result in significant changes to the net periodic benefit costs of providing such benefits and the related liabilities recognized by SJI.    


During 2016, a combination of factors resulted in lowering the Company’s expected cost of providing pension and other postretirement healthcare costs in 2017. These include increasing discount rates and updated mortality tables released by the Society of Actuaries in late 2016.

During 2017, the Company's expected cost of providing pension and other postretirement healthcare in 2018 increased primarily due to updates to census data and decreasing discount rates resulting from lower market interest rates at the end of 2017. As a result, the Company is estimating a $1.8 million net increase in the cost of providing these benefits in 2018. Additional information regarding investment returns and assumptions can be found in Pension and Other Postretirement Benefits inRevenue Recognition (see Note 1219 to the consolidated financial statements.

Revenue Recognitionstatements) - Gas and electricity revenues are recognized in the period the commodity is delivered to customers. SJG, SJRG and SJEAll SJI entities bill customers monthly. A majority of SJG and SJE customers have their meters read on a cycle basis throughout the month. For SJG and SJE retail customers that are not billed at the end of each month, we record an estimate to recognize unbilled revenues for gas/electricity delivered from the date of the last meter reading to the end of the month. SJG's and SJE'sThe Utilities' unbilled revenue for natural gas is estimated each month based on monthly deliveries into the system; unaccounted for natural gas based on historical results; customer-specific use factors, when available; actual temperatures during the period; and applicable customer rates. SJE's unbilled revenue for retail electricity is based on customer-specific use factors and applicable customer rates. We bill SJG and ETG customers at rates approved by the BPU.BPU, and ELK customers at rates approved by the MPSC. SJE and SJRG customers are billed at rates negotiated between the parties.


SJRG presents revenues and expenses related to its energy trading activities on a net basis in Operating Revenues - Nonutility in the statements of consolidated income consistent with GAAP. This net presentation has no effect on operating income or net income.


SJESP will receive commissions paid on service contracts from the third party on a go forward basis. These commissions are recognized as revenue as they are earned.


Marina recognizes revenue on a monthly basis as services are provided and for on-site energy production that is delivered to its customers.


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On January 1, 2018, SJI and SJG adopted ASU 2014-09 Revenue from Contracts with Customers, and all amendments, in accordance with the guidance in ASC 606. SJI and SJG adopted the new guidance using the modified retrospective method applied to those contracts that were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported in accordance with the historical accounting under ASC 605. The methods of recognizing revenue for SJI's and SJG's contracts with customers is the same under ASC 605 and ASC 606, as revenues from contracts that SJI and SJG have with customers are currently recorded as gas or electricity is delivered to the customer, which is consistent with the new guidance under ASC 606. As such, there was no significant impact to revenues for the year ended December 31, 2018 for SJI or SJG as a result of applying ASC 606, and there was no cumulative catch-up to retained earnings for SJI or SJG under the modified retrospective method for changes in accounting for revenues. Further, there were no significant changes to SJI's or SJG's business processes, systems or internal control over financial reporting needed to support recognition and disclosure under the new guidance. Some revenue arrangements, such as alternative revenue programs and derivative contracts, are excluded from the scope of ASC 606 and, therefore, will be presented separately from revenues under ASC 606 on SJI and SJG's footnote disclosures (see Note 19 to the consolidated financial statements). Alternative revenue programs include revenue earned at the Utilities on such programs as the CIP, AIRP, SHARP and WNC.

The BPU allows SJGBPU/MPSC allow the Utilities to recover gas costs in rates through the BGSS price structure. SJG defersThe Utilities defer over/under recoveries of gas costs and includes them in subsequent adjustments to the BGSS rate. These adjustments result in over/under recoveries of gas costs being included in rates during future periods. As a result of these deferrals, utility revenue recognition does not directly translate to profitability. While SJG realizesthe Utilities realize profits on gas sales during the month of providing the utility service, significant shifts in revenue recognition may result from the various recovery clauses approved by the BPU.BPU/MPSC. This revenue recognition process does not shift earnings between periods, as these clauses only provide for cost recovery on a dollar-for-dollar basis (see Notes 10 and 11 to the consolidated financial statements).


Each CIP year begins OctoberGoodwill (see Note 21 to the consolidated financial statements) - The segments that have goodwill are ETG Utility Operations and Corporate & Services for 2019 and 2018, along with On-site Energy Production and ELK Utility Operations for 2018 only (see “Agreement to Sell MTF & ACB” and “Agreement to Sell ELK” within Note 1 to the consolidated financial statements). Goodwill represents future economic benefits arising from other assets acquired in a business combination that are not individually identified and ends September 30separately recognized. Goodwill is initially measured at cost, being the excess of the subsequent year.  Onaggregate of the consideration paid or transferred over the fair value of identifiable net assets acquired. Goodwill is not amortized, but instead is subject to impairment testing on an annual basis, and between annual tests whenever events or changes in circumstances indicate that the fair value of a monthly basis duringreporting unit may be below its carrying amount.

The Company performs its annual goodwill impairment test in the fourth quarter of each fiscal year beginning with a CIP year, SJG records adjustmentsqualitative assessment at the reporting unit level. The reporting unit level is identified by assessing whether the components of our operating segments constitute businesses for which discrete financial information is available, whether segment management regularly reviews the operating results of those components and whether the economic and regulatory characteristics are similar. Factors utilized in the qualitative analysis performed on goodwill in our reporting units include, among other things, macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, company specific operating results and other relevant entity-specific events affecting individual reporting units.

If sufficient qualitative indicators exist, goodwill impairment is determined using a two-step process. Step one identifies potential impairment by comparing the fair value of a reporting unit to earnings based on weatherthe book value, including goodwill. The Company estimates the fair value of a reporting unit using a discounted cash flow analysis.  Management also considers other methods, which include a market multiples analysis. Determining the fair value of a reporting unit requires judgment and customer usage factors, as incurred.  Subsequentthe use of significant estimates and assumptions. Such estimates and assumptions include, but are not limited to, each year, SJG makes filings withforecasts of future operating results, discount and growth rates, capital expenditures, tax rates, and projected terminal values. Changes in estimates or the BPUapplication of alternative assumptions could produce significantly different results. If the fair value exceeds book value, goodwill of the reporting unit is not considered impaired. If the book value exceeds fair value, step two is undertaken, which compares the implied fair value of the reporting unit's goodwill to reviewthe book value of the reporting unit goodwill. If the book value of goodwill exceeds the implied fair value, an impairment charge is recognized for the excess.

Evaluation of Equity Method Investments for Other-Than-Temporary Impairment (see Note 3 to the consolidated financial statements) - Our evaluation of impairment of equity method investments when conditions exist that could indicate that the fair value of the investment is less than book value includes key inputs that involve significant management judgments and approve amounts recorded underestimates, including projections of the CIP.  BPU-approvedinvestment's cash inflows or outflows generally willflows, selection of a discount rate and probability weighting of potential outcomes of legal proceedings and other available options.

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As a result of the September decision by the U.S. Court of Appeals and continuing events (see "PennEast" above), we evaluated our investment in the PennEast project for an other-than-temporary impairment. Our impairment assessment used a discounted cash flow income approach, including consideration of the severity and duration of any decline in fair value of our investment in the project. Our significant estimates and assumptions included development options and legal outcomes, construction costs, timing of in-service dates, revenues (including forecasted volumes and rates), and discount rates. At this time, we believe that we do not begin until the next CIP yearhave an other-than-temporary impairment and have no impact on earningsnot recorded any impairment charge to reduce the carrying value of our investment. Our evaluation considered that the pending legal proceedings are at very early stages, and the intent is to move forward with all potential legal proceedings and other options available. However, to the extent that time.the legal proceedings have unfavorable outcomes, or if PennEast concludes that the project is not viable or does not go forward as actions progress, our conclusions with respect to other-than-temporary impairment could change and may require that we recognize an impairment charge of up to our recorded investment in the project, net of any cash and working capital. We will continue to monitor and update this analysis as required. Different assumptions could affect the timing and amount of any charge recorded in a period.


Tax Cuts and Jobs Act (see Note 4 to the consolidated financial statements) - On December 22, 2017, the Tax Cuts and Jobs Act ("Tax Reform")Reform was enacted into law, which changeschanging various corporate income tax provisions within the existing Internal Revenue Code. The law became effective January 1, 2018 but iswas required to be accounted for in the period of enactment, which foras such SJI and SJG isadopted the new requirements in the fourth quarter of 2017. SJI and SJG were impacted in several ways as a result of Tax Reform, including provisions related to the permanent reduction in the U.S. federal corporate income tax rate from 35% to 21%. See Note 4 to the consolidated financial statements.


NEW ACCOUNTING PRONOUNCEMENTS - See detailed discussions concerning New Accounting Pronouncements and their impact on SJI in Note 1 to the consolidated financial statements.



RATES AND REGULATION - As a public utility, SJG isand ETG ("the NJ Utilities" for context of this section) are subject to regulation by the BPU. Additionally, the Natural Gas Policy Act, which was enacted in November 1978, contains provisions for Federal regulation of certain aspects of SJG'sthe NJ Utilities' business. SJG isThe NJ Utilities are affected by Federal regulation with respect to transportation and pricing policies applicable to pipeline capacity from Transcontinental Gas Pipe Line Company, LLC (SJG'sTransco (both utilities' major supplier), Columbia Gas Transmission, LLC and Dominion, Transmission, Inc., since such services are provided under rates and terms established under the jurisdiction of the FERC. SJG'sThe NJ Utilities' retail sales are made under rate schedules within a tariff filed with, and subject to the jurisdiction of, the BPU. These rate schedules provide primarily for either block rates or demand/commodity rate structures. SJG'sThe NJ Utilities' primary rate mechanisms include base rates, the BGSS, Accelerated Infrastructure Programs, Energy Efficiency Tracker (EET)EET and the CIP.CIP for SJG, and BGSS and WNC for ETG.


The CIP is a BPU-approved program that is designed to eliminate the link between SJG profits and the quantity of natural gas SJG sells, and to foster conservation efforts. With the CIP, SJG's profits are tied to the number of customers served and how efficiently SJG serves them, thus allowing SJG to focus on encouraging conservation and energy efficiency among its customers without negatively impacting net income.  The CIP tracking mechanism adjusts earnings based on weather, and also adjusts SJG's earnings when actual usage per customer experienced during an annual period varies from an established baseline usage per customer. 


Each CIP year begins October 1 and ends September 30 of the subsequent year.  On a monthly basis during a CIP year, SJG records adjustments to earnings based on weather and customer usage factors, as incurred.  Subsequent to each year, SJG makes filings with the BPU to review and approve amounts recorded under the CIP.  BPU-approved cash inflows or outflows generally will not begin until the next CIP year and have no impact on earnings at that time.

Utility earnings are recognized during current periods based upon the application of the CIP. The cash impact of variations in customer usage will result in cash being collected from, or returned to, customers during the subsequent CIP year, which runs from October 1 to September 30.



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The effects of the CIP on SJG's net income for the last three years and the associated weather comparisons were as follows ($'s in millions):


 201920182017
Net Income Impact:   
CIP - Weather Related$5.6  $(16.5) $8.7  
CIP - Usage Related(6.2) 7.5  3.3  
Total Net Income Impact$(0.6) $(9.0) $12.0  
 
Weather Compared to 20-Year Average5.2% warmer183.0% colder11.5% warmer
Weather Compared to Prior Year2.6% warmer7.7% colder0.4% warmer
 201720162015
Net Income Impact:   
CIP - Weather Related$8.7
$5.9
$0.9
CIP - Usage Related3.3
4.0
(1.9)
Total Net Income Impact$12.0
$9.9
$(1.0)
    
Weather Compared to 20-Year Average11.5% warmer8.1% warmer3.1% warmer
Weather Compared to Prior Year0.4% warmer2.5% warmer9.6% warmer


As part of the CIP, SJG is required to implement additional conservation programs, including customized customer communication and outreach efforts, targeted upgrade furnace efficiency packages, financing offers, and an outreach program to speak to local and state institutional constituents. SJG is also required to reduce gas supply and storage assets and their associated fees. Note that changes in fees associated with supply and storage assets have no effect on SJG's net income as these costs are passed through directly to customers on a dollar-for-dollar basis.


Earnings accrued and payments received under the CIP are limited to a level that will not cause SJG's return on equity to exceed 9.6% (excluding earnings from off-system gas sales and certain other tariff clauses) and CIP recoveries are limited by the annualized savings attained from reducing gas supply and storage assets.


For ETG, the WNC is a BPU-approved program that is designed to recover or refund balances associated with differences between actual and normal weather during the preceding winter period(s). The effective winter period of the WNC is defined as October through May.

In 2019, ETG's net income was reduced by $5.9 million, primarily due to colder than average weather for the applicable months in the 2019 winter period.

See additional detailed discussions on Rates and Regulatory Actions in Note 10 to the consolidated financial statements.


ENVIRONMENTAL REMEDIATION - See detailed discussion concerning Environmental Remediation in Note 15 to the consolidated financial statements.



COMPETITION - SJG'sThe Utilities' franchises are non-exclusive. Currently, no other utility provides retail gas distribution services within SJG's territory. SJG doesthe Utilities territories, and we do not expect any other utilities to do so in the foreseeable future because of the extensive investment required for utility plant and related costs. SJG competesThe Utilities compete with oil, propane and electricity suppliers for residential, commercial and industrial users, with alternative fuel source providers (wind, solar and fuel cells) based upon price, convenience and environmental factors, and with other marketers/brokers in the selling of wholesale natural gas services. The market for natural gas commodity sales is subject to competition due to deregulation. SJG's competitive position was enhanced while maintaining margins by using an unbundled tariff. This tariff allows full cost-of-service recovery when transporting gas for SJG's customers. Under this tariff, SJG profits from transporting, rather than selling, the commodity. SJG's residential, commercial and industrial customers can choose their supplier, while SJG recovers the cost of service through transportation service (See Customer Choice Legislation below).


SJRG competes in the wholesale natural gas market against a wide array of competitors on a cost competitive, term of service, and reliability basis. SJRG has been a reliable energy provider in this arena for more than 20 years.


Marina competes with other companies that develop and operate similar types of on-site energy production. Marina also faces competition from customers' preferences for alternative technologies for energy production, as well as those customers that address their energy needs internally.


SJE competes with utilities and other third-party marketers to sell the unregulated natural gas and electricity commodity to customers. Marketers compete largely on price, which is driven by the commodity market. While the utilities are typically indifferent as to where customers get their gas or electricity, the price they set for the commodity they sell creates competition for SJE. Based on its market share, SJE is one of the largest marketers of natural gas in southern New Jersey as of December 31, 2017. In addition, similar to SJG, SJE faces competition from other energy products.
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CUSTOMER CHOICE LEGISLATION - All residential natural gas customers in New Jersey can choose their natural gas commodity supplier under the terms of the “Electric Discount and Energy Competition Act of 1999." This bill created the framework and necessary time schedules for the restructuring of the state's electric and natural gas utilities. The Act established unbundling, where redesigned utility rate structures allow natural gas and electric consumers to choose their energy supplier. It also established time frames for instituting competitive services for customer account functions and for determining whether basic gas supply services should become competitive. Customers purchasing natural gas from a provider other than the local utility (the “marketer”) are charged for the gas costs by the marketer and charged for the transportation costs by the utility. The total number of customers in SJG's service territory purchasing natural gas from a marketer averaged 22216, 25,665 and 30,423 34,130during 2019, 2018 and 36,1912017, respectively. The total number of customers in ETG's service territory purchasing natural gas from a marketer averaged 8,338 during 2017, 2016 and 2015, respectively.2019.


RESULTS OF OPERATIONS:


For information on the changes in results of operations from 2018 compared to 2017, refer to the Management Discussion & Analysis section in Item 7 of SJI's and SJG's Annual Report on Form 10-K for the year ended December 31, 2018.

SJI operates in several different reportable operating segments. These segments are as follows:


Gas•SJG utility operations (SJG) consist primarily of natural gas distribution to residential, commercial and industrial customers. The resultscustomers in southern New Jersey.
•ETG utility operations consist primarily of SJG only are includednatural gas distribution to residential, commercial and industrial customers in this operating segment.northern and central New Jersey.
•ELK utility operations consist of natural gas distribution to residential, commercial and industrial customers in Maryland. As discussed in Note 1, SJI entered into an agreement to sell ELK to a third party, with expected closing in the middle of 2020.
•Wholesale energy operations include the activities of SJRG and SJEX.
SJE is involved in both retail•Retail gas and retailother operations at SJE included natural gas acquisition and transportation service business lines. This business was sold on November 30, 2018 (see Note 1 to the consolidated financial statements).
•Retail electric activities.operations at SJE consist of electricity acquisition and transportation to commercial, industrial and residential customers.
◦Retail gas and other operations include natural gas acquisition and transportation service business lines.
◦Retail electric operations consist of electricity acquisition and transportation to commercial, industrial and residential customers.
•On-site energy production consists of Marina's thermal energy facilityMTF and ACB, which, as disclosed in Notes 1 and 22 to the consolidated financial statements, were sold on February 18, 2020. This segment also includes other energy-related projects, including three remaining solar projects. Also included in this segment are the activities of ACB, ACLE, BCLE, SCLE, SXLE, along with MCS, NBS and SBS.
SBS, which were sold in October 2018 (see Note 1 to the consolidated financial statements).
•Appliance service operations includes SJESP, which serviced residential and small commercial HVAC systems, installed small commercial HVAC systems, provided plumbing services and serviced appliances under warranty via a subcontractor arrangement as well as on a time and materials basis. On September 1, 2017, SJESP sold certain assets of its residential and small commercial HVAC and plumbing business to a third party. SJESP will receivereceives commissions paid on service contracts from thea third party on a go forward basis. This transaction did not have a material impact on the consolidated financial statements.party.
•Midstream was formed to invest in infrastructure and other midstream projects, including a current project to build a natural gas pipeline in Pennsylvania and New Jersey.
Costs incurred•Corporate & Services segment includes costs related to the agreement to acquire Elizabethtown GasAcquisition, along with other unallocated costs. Also included in this segment are the results of SJEI.
•Intersegment represents intercompany transactions between the above SJI consolidated entities.

SJI groups its utility businesses under its wholly-owned subsidiary SJIU. This group consists of gas utility operations of SJG, ETG and Elkton Gas are recorded in the Corporate & Services segment.


ELK. SJI groups its nonutility operations into twoseparate categories: Energy Group and Energy Services. Energy Group includes wholesale energy, retail gas and other, and retail electric operations. Energy Services includes on-site energy production and appliance service operations.
 
SJI's net income for 2017 decreased $122.32019 increased $59.3 million or 102.9%, to a net loss of $3.5$76.9 million compared to 2016 primarily2018. SJI's income from continuing operations for 2019 increased $59.3 million to $77.2 million compared to 2018. The significant drivers for the overall changes were as a result offollows (all numbers in the following:bullet points below are presented after-tax):


•The net income contribution from on-site energy production at Marina decreased $76.5increased $68.9 million to a net loss of $60.5$9.1 million, primarily due to the following:
◦
$56.1 million decrease due to several impairment charges recorded during the year, including impairments on solar generating facilities, landfill gas-to-energy (LFGTE) long-lived assets, LFGTE assets customer relationships, and goodwill (see Note 1 to the consolidated financial statements).
◦$9.1 million of investment tax credits on renewable energy facilities recorded in 2016, compared with none recorded in 2017, which is consistent with SJI's previously announced strategy of substantially reducing solar development.
◦$4.5 million decrease related to gains on two settlements recorded at Marina in 2016 that did not recur in 2017 (see Note 7 to the consolidated financial statements).
◦$1.7 million decrease related to the change in unrealized gains and losses on interest rate derivative contracts (see Note 16 to the consolidated financial statements).
◦
The remaining decrease is primarily due to an overall increase in operating and interest expenses.

◦Less impairment charges taken in 2019 compared with 2018. The netmain drivers to this were impairment charges taken on solar generating facilities and LFGTE assets in 2018, which were driven by the purchase price in the agreement to sell solar assets being less than the carrying amount of the assets, along with the carrying value of LFGTE assets no longer being recoverable (see Note 1 to the consolidated financial statements).
36

◦Consulting and legal costs related to the sale of Marina's solar assets to a third-party buyer incurred during 2018 that did not recur in 2019.
◦Lower depreciation expense resulting from the sale of solar assets also contributed to the overall increase in income.
◦These increases were partially offset with lower margins resulting from less SREC revenue as discussed under "Gross Margin - Energy Services" below, along with consulting and legal costs related to the agreement to sell MTF and ACB to a third-party buyer that were incurred during 2019 (see Note 1 to the consolidated financial statements).

•The combined income contribution from ETG and ELK gas utility operations increased $40.1 million to $34.9 million, primarily due to SJI consolidating the accounts of ETG and ELK for all twelve months in 2019 compared to only the last six months of 2018, along with credits provided to customers of ETG and ELK in connection with the Acquisition during 2018 that did not recur in 2019 (see Note 20 to the consolidated financial statements). These were partially offset with interest charges related to debt held by ETG during 2019 (see Note 14 to the consolidated financial statements).

•Acquisition costs were approximately $22.1 million lower during 2019 compared to 2018. This is primarily due to the Company incurring less legal, consulting and other professional fees related to the Acquisition than the prior year, as the costs incurred in 2018 were to finalize the Acquisition. Costs that were incurred during 2019 were related to preparations to exit the TSA. All Acquisition and TSA related costs are recorded in the Corporate & Services segment.

•SJI recorded $5.0 million in expenses related to the implementation of the ERIP as well as amendments made to OPEB during 2018 that did not recur in 2019 (see Note 1 to the consolidated financial statements).

•The income contribution from gas utility operations at SJG increased $4.5 million to $87.4 million, primarily due to customer growth and the roll-in of AIRP II investments. SJG's CIP mechanism, which adjusts earnings when actual usage per customer experienced during the period varies from an established baseline usage per customer, also contributed to the comparative period increase. These were partially offset with an increase in maintenance and depreciation expenses during 2019 compared with 2018 as discussed under "Other Operating Expenses-All Segments" below.

•The income contribution from the wholesale energy operations at SJRG decreased $49.5$64.8 million to a net loss of $23.5$1.4 million, primarily due to the following:
◦$32.6 million decrease resulting from an unfavorable court ruling related to a pricing dispute between SJRG and a supplier, including interest (see Note 15 to the consolidated financial statements)
◦$20.6 million decrease resulting from the change in unrealized gains and losses on derivatives used by the wholesale energy operations to mitigate natural gas commodity price risk, as discussed under "Operating Revenues - Energy Group" below.
◦$5.8 million decrease resulting from a settlement of a legal dispute related to a three-year capacity management contract with a counterparty (see Note 15 to the consolidated financial statements)
◦$1.5 million decrease due to legal fees recorded on the two legal disputes noted above
◦$5.7 million increase resulting from a favorable FERC decision over a tariff rate dispute with a counterparty, including interest, whereby SJI contended that the counterparty was overcharging for storage demand charges over a ten year period (see Note 15 to the consolidated financial statements).
◦
$5.3 million increase due to higherlower margins earned on daily energy trading activities and an overall decrease in sales due to colder weather conditions experienced in the fourth quarter of 2017 compared to the prior year, additional margins earned during 2017 on gas supply contracts with three electric generation facilities, and an overall decrease in operating expenses (excluding the legal fees discussed above).

SJI recorded $12.0 million of expenses related to costs incurred on the agreement to acquire the assets of Elizabethtown Gas and Elkton Gas (see Note 1 to the consolidated financial statements). These include finders fees, consulting and legal charges, among others. These costs are recorded in the Corporate & Services segment.

The net income contribution from the retail gas and electric operations at SJE decreased $6.2 millionfirst quarter of 2018 as compared to $1.3 million primarily due toa warmer winter in 2019. Also contributing was the change in unrealized gains and losses on forward financial contracts used to mitigate price risk on retail gas as discussed under "Operating Revenues – Energy Group" below, along with the expiration of a large electric sales contract with a group of school boards.

SJI recorded $13.5 million of tax gains related to the enactment of Tax Reform. See Note 4 to the consolidated financial statements.

The net income contribution from Midstream increased $4.8 million to $4.6 million primarily due to recognition of Allowance for Funds Used During Construction (AFUDC) at PennEast, of which Midstream has a 20% equity interest.

The net income contribution from gas utility operations at SJG increased $3.5 million to $72.6 million primarily due to increased margin resulting from investments included in the rate case, AIRP II and SHARP rolling into base rates during the fourth quarter of 2017, along with customer growth. This is partially offset by increases in depreciation, interest and operations expenses.


SJI recognized an additional gain of $1.7 million related to the sale of real estate during 2017.

SJI's net income for 2016 increased $13.7 million, or 13.0%, to $118.8 million compared to 2015 primarily as a result of the following:

The net income contribution from retail gas and electric operations at SJE increased $8.2 million to $7.5 million, primarily due to the change in unrealized gains and losses on forward financial contracts used to mitigate price risk on retail gas and electric as discussed under "Operating Revenues – Nonutility" below.

The net income contribution from the wholesale energy operations at SJRG increased $4.8 million to $26.0 million, primarily due to an approximately $2.7 million increase related to additional transportation capacity along with margins earned on gas supply contracts with two electric generation facilities compared to the prior year as described in "Gross Margin - Energy Group" below, along with an approximately $2.1 million increase resulting from the change in unrealized gains and losses on derivatives used by the wholesale energy operations to mitigate natural gas commodity price riskvolatility, as discussed under "Operating Revenues - Energy Group" below.


The net income contribution from gas utility operations at SJG increased $2.5•SJI had an increase of $15.8 million in financing and interest costs during 2019 compared with 2018. These costs are related to $69.1debt that was entered into during the second quarter of 2018 in order to finance the Acquisition. These costs are recorded in the Corporate & Services segment.

•SJI incurred $3.1 million primarily due toof severance and other employee separation costs during 2019. These costs are recorded in the rolling into base rates of SHARP and AIRP investments, along with customer growth.Corporate & Services segment.


The net income contribution from on-site energy production at Marina increased $0.5 million to $16.0 million, primarily due to the following:

◦$15.2 million increase due to the impact of a reduction in the carrying amount of an investment at one of Energenic's operating subsidiaries, which occurred in 2015 (see Note 7 to the consolidated financial statements), along with other losses incurred at the Energenic operating subsidiaries in 2015.
◦$9.3 million increase due to several new renewable energy projects that commenced operations over the past twelve months, along with higher prices on SRECs compared to the previous year as discussed in "Gross Margin - Energy Services" below.
◦$4.5 million increase due to a settlement at Marina in 2016 (see Note 7 to the consolidated financial statements).
◦$0.7 million increase due to the impact of several entities that became wholly owned by Marina as of December 31, 2015 (see Note 3 to the consolidated financial statements).
◦$29.2 million decrease due to the impact of lower renewable energy investments on the investment tax credits available as compared to the prior year. This reduction is consistent with the Company's previously announced strategy of substantially reducing solar development in 2016.

The net income contribution from SJEX decreased $1.4 million to $0.1 million primarily due to a gain on the sale of a working interest in assets of Potato Creek in 2015, which did not recur in 2016.

A significant portion of the volatility in operating results is due to the impact of the accounting methods associated with SJI's derivative activities. SJI uses derivatives to limit its exposure to market risk on transactions to buy, sell, transport and store natural gas and to buy and sell retail electricity. SJI also uses derivatives to limit its exposure to increasing interest rates on variable-rate debt.



The types of transactions that typically cause the most significant volatility in operating results are as follows:


• The wholesale energy operations at SJRG purchases and holds natural gas in storage and maintains capacity on interstate pipelines to earn profit margins in the future. The wholesale energy operations utilize derivatives to mitigate commodity price risk in order to substantially lock-in the profit margin that will ultimately be realized. However, both gas stored in inventory and pipeline capacity are not considered derivatives and are not subject to fair value accounting. Conversely, the derivatives used to reduce the risk associated with a change in the value of inventory and pipeline capacity are accounted for at fair value, with changes in fair value recorded in operating results in the period of change. As a result, earnings are subject to volatility as the market price of derivatives change, even when the underlying hedged value of inventory and pipeline
37

capacity are unchanged. Additionally, volatility in earnings is created when realized gains and losses on derivatives used to mitigate commodity price risk on expected future purchases of gas injected into storage are recognized in earnings when the derivatives settle, but the cost of the related gas in storage is not recognized in earnings until the period of withdrawal. This volatility can be significant from period to period. Over time, gains or losses on the sale of gas in storage, as well as use of capacity, will be offset by losses or gains on the derivatives, resulting in the realization of the profit margin expected when the transactions were initiated.


• The retail electric operations at SJE use forward contracts to mitigate commodity price risk on fixed price electric contracts with customers. In accordance with GAAP, the forward contracts are recorded at fair value, with changes in fair value recorded in earnings in the period of change. Several related customer contracts are not considered derivatives and, therefore, are not recorded in earnings until the electricity is delivered. As a result, earnings are subject to volatility as the market price of the forward contracts change, even when the underlying hedged value of the customer contract is unchanged. Over time, gains or losses on the sale of the fixed price electric under contract will be offset by losses or gains on the forward contracts, resulting in the realization of the profit margin expected when the transactions were initiated.  
 
As a result, management also uses the non-generally accepted accounting principles (non-GAAP)non-GAAP financial measures of Economic Earnings and Economic Earnings per sharePer Share when evaluating the results of operations for its nonutility operations. These non-GAAP financial measures should not be considered as an alternative to GAAP measures, such as net income, operating income, earnings per share from continuing operations or any other GAAP measure of liquidity or financial performance.
 
We define Economic Earnings as: Income from continuing operations, (a)(i) less the change in unrealized gains and plus the change in unrealized losses on all derivative transactions; (b)(ii) less realized gains and plus realized losses on all commodity derivative transactions attributedinventory injection hedges, which relate to expected purchases of gas in storage to match the recognition of these gains and losses with the recognition of the related cost of the gas in storage in the period of withdrawal; (c)and (iii) less the impact of transactions, or contractual arrangements or other events where the true economic impact willmanagement believes period to period comparisons of SJI's operations could be realized in a future period; (d) as adjusted by the impact of a May 2017 jury verdict stemming from a pricing dispute with a gas supplier over costs, including interest charges and legal fees incurred; (e) as adjusted by the impact of a settlement of an outstanding legal claim stemming from a dispute related to a three-year capacity management contract with a counterparty, including legal fees incurred; (f) as adjusted by the impact of a favorable FERC decision over a tariff rate dispute with a counterparty, including interest earned; and (g) as adjusted for various costs related to the agreement to acquire the assets of Elizabethtown Gas and Elkton Gas.difficult or potentially confusing. With respect to part (c)(iii) of the definition, of Economic Earnings:

For the year ended December 31, 2017, Economic Earnings excludes an approximately $2.4 million pre-tax loss related to a new interest rate derivative and amendments made to an existing interest rate derivative linked to unrealized losses previously recorded in Accumulated Other Comprehensive Loss (AOCL). SJI reclassified this amount from AOCL to Interest Charges on the consolidated statements of income as a result of the prior hedged transactions being deemed probable of not occurring. Since the economic impact will not be realized until future periods, this amount is excluded from Economic Earnings. See Note 16 to the consolidated financial statements.

For the year ended December 31, 2017, Economic Earnings excludes approximately $91.3 million of pre-tax charges related to several impairment charges recorded during the year, including impairments on solar generating facilities, landfill gas-to-energy (LFGTE) long-lived assets, LFGTE assets customer relationships, and goodwill (see Note 1 to the consolidated financial statements). The economic impact of these charges will not be realized until a future period. An impairment charge was also recorded in 2012 within Income from Continuing Operations on a separate solar generating facility which reduced its depreciable basis and recurring depreciation expense, and this was also excluded from Economic Earnings.


For the year ended December 31, 2017, Economic Earnings excludes approximately $11.4 million for the impact of one-time tax adjustments, most notably related to the Tax Cuts and Jobs Act (Tax Reform), which was signed into law in December 2017.

For the year ended December 31, 2015, Economic Earnings includes a pre-tax loss of $2.5 million from affiliated companies that wasitems are excluded from Economic Earnings for the yearyears ended December 31, 2014. These adjustments are2019, 2018 and 2017, including impairment charges, the resultimpact of a reserve for uncollectible accounts recorded by an Energenic subsidiary that ownedpricing disputes with third parties, costs to acquire ETG and operated a central energy centerELK, costs to prepare to exit the TSA, costs incurred and energy distribution system for a hotel, casino and entertainment complex in Atlantic City, New Jersey (see Note 7gains recognized on the sale of assets, customer credits related to the consolidated financial statements). In 2014, this charge was excluded from Economic Earnings asacquisition of ETG and ELK, ERIP costs, severance and other employee separation costs and the total economic impact of Tax Reform. See (A)-(H) in the proceedings had not been realized. During the second quarter of 2015, the Company, through its investment in Energenic, reduced the carrying value of the investment in this project. As such, this charge is included in Economic Earnings for the year ended December 31, 2015.table below.


Economic Earnings is a significant performance metricfinancial measure used by our management to indicate the amount and timing of income from continuing operations that we expect to earn after taking into account the impact of derivative instruments on the related transactions, and transactions or contractual arrangements where the true economic impact will be realized primarily in a futureand other events that management believes make period to period comparisons of SJI's operations difficult or was realized in a previous period.potentially confusing. Specifically regarding derivatives, we believe that this financial measure indicates to investors the profitability of the entire derivative-related transaction and not just the portion that is subject to mark-to-market valuation under GAAP. We believe that considering only the change in market value on the derivative side of the transaction can produce a false sense as to the ultimate profitability of the total transaction as no change in value is reflected for the non-derivative portion of the transaction.


Economic Earnings for 20172019 decreased $4.8$13.2 million, or 4.6%11.4%, to $98.1$103.0 million compared to 2016, primarily2018. The significant drivers for the overall change were as a result offollows (all numbers in the following:bullet points below are presented after-tax):


•The income contribution from on-site energy production at Marina decreased $18.9 million to a net loss of $3.2 million. This was primarily due to the impact of recording no investment tax credits on renewable energy facilities in 2017, compared with $9.1 million in 2016, which is consistent with SJI's previously announced strategy of substantially reducing solar development. Also contributing was $4.5 million for two settlements recorded at Marina during 2016 that did not recur in 2017 (see Note 7 to the consolidated financial statements). The remaining decrease is primarily due to an overall increase in operating and interest expenses.

The income contribution from the retail gas and electric operations at SJE decreased $1.8 million to a net loss of $0.5 million primarily due to the expiration of a large electric sales contract with a group of school boards.

The incomeEconomic Earnings contribution from the wholesale energy operations at SJRG increased $5.3decreased $34.9 million to $21.6$8.7 million, primarily due to higherlower margins earned on daily energy trading activities colder weather conditions experienced in the fourth quarter of 2017 compared to the prior year, additional margins earned during 2017 on gas supply contracts with three electric generation facilities, and an overall decrease in operating expenses (excludingsales due to colder weather experienced in the legal fees discussed above).first quarter of 2018 as compared to a warmer winter in 2019.


•SJI had an increase of $15.8 million in financing and interest costs during 2019 compared with 2018. These costs are related to debt that was entered into during the second quarter of 2018 in order to finance the Acquisition. These costs are recorded in the Corporate & Services segment.

•The incomecombined Economic Earnings contribution from MidstreamETG and ELK gas utility operations increased $4.8$29.1 million to $4.6$34.9 million, primarily due to recognitionSJI consolidating the accounts of AllowanceETG and ELK for Funds Used During Construction (AFUDC) at PennEast,all twelve months in 2019 compared to only the last six months of which Midstream has a 20% equity interest.2018. This was partially offset with interest charges related to debt held by ETG during 2019 (see Note 14 to the consolidated financial statements).


38

•The incomeEconomic Earnings contribution from gas utility operations at SJG increased $3.5$4.5 million to $72.6$87.4 million, primarily due to increased margin resulting from investments included incustomer growth and the rate case,roll-in of AIRP II and SHARP rolling into base ratesinvestments. SJG's CIP mechanism, which adjusts earnings when actual usage per customer experienced during the fourth quarter of 2017, along withperiod varies from an established baseline usage per customer, growth. This isalso contributed to the comparative period increase. These were partially offset by increaseswith an increase in maintenance and depreciation interest and operations expenses.expenses during 2019 compared with 2018 as discussed under "Other Operating Expenses-All Segments" below..

SJI recognized an additional gain of $1.7 million related to the sale of real estate during 2017.

Economic Earnings for 2016 increased $3.9 million, or 3.9%, to $102.8 million compared to 2015, primarily as a result of the following:

The income contribution from the wholesale energy operations at SJRG increased $2.7 million to $16.3 million, primarily due to additional transportation capacity along with margins earned on gas supply contracts with two electric generation facilities compared to the prior year as described in "Gross Margin - Energy Group" below.

The income contribution from gas utility operations at SJG increased $2.5 million to $69.1 million, primarily due to the rolling into base rates of SHARP and AIRP investments, along with customer growth.

The income contribution from on-site energy production at Marina increased $1.7 million to $15.7 million, primarily due to the following:

◦$16.5 million increase due to the impact of a reduction in the carrying amount of an investment at one of Energenic's operating subsidiaries, which occurred in 2015 (see Note 7 to the consolidated financial statements), along with other losses incurred at the Energenic operating subsidiaries in 2015.
◦$9.2 million increase due to several new renewable energy projects that commenced operations over the past twelve months, along with higher prices on SRECs compared to the previous year as discussed in "Gross Margin - Energy Services" below.
◦$4.5 million increase due to a settlement at Marina in 2016 (see Note 7 to the consolidated financial statements).
◦$0.7 million increase due to the impact of several entities that became wholly owned by Marina as of December 31, 2015 (see Note 3 to the consolidated financial statements).
◦$29.2 million decrease due to the impact of lower renewable energy investments on the investment tax credits available as compared to the prior year. This reduction is consistent with the Company's previously announced strategy of substantially reducing solar development in 2016.

The net income contribution from SJEX decreased $1.4 million to $0.1 million primarily due to a gain on the sale of a working interest in assets of Potato Creek in 2015, which did not recur in 2016.


The following table presents a reconciliation of our income from continuing operations and earnings per share from continuing operations to Economic Earnings and Economic Earnings per share (in thousands, except per share data):


 201920182017
Income (Loss) from Continuing Operations$77,189  $17,903  $(3,404) 
Minus/Plus:   
Unrealized Mark-to-Market Losses (Gains) on Derivatives14,546  (35,846) 14,226  
Realized Losses on Inventory Injection Hedges—  —  332  
Loss on Property, Plant and Equipment (A)10,745  105,280  91,299  
Net Losses from Legal Proceedings (B)2,336  5,910  56,075  
Acquisition/Sale Costs (C)3,468  34,674  19,564  
Customer Credits (D)—  15,333  —  
ERIP and OPEB (E)—  6,733  —  
Other (F)4,179  —  2,227  
Income Taxes (G)(9,423) (33,753) (70,834) 
Additional Tax Adjustments (H)—  —  (11,420) 
Economic Earnings$103,040  $116,234  $98,065  
Earnings (Loss) per Share from Continuing Operations$0.84  $0.21  $(0.04) 
Minus/Plus:   
Unrealized Mark-to-Market Losses (Gains) on Derivatives0.16  (0.42) 0.18  
Loss on Property, Plant and Equipment (A)0.12  1.24  1.14  
Net Losses from Legal Proceedings (B)0.02  0.07  0.70  
Acquisition/Sale Costs (C)0.04  0.41  0.25  
Customer Credits (D)—  0.18  —  
ERIP and OPEB (E)—  0.08  —  
Other (F)0.04  —  0.03  
Income Taxes (G)(0.10) (0.39) (0.89) 
Additional Tax Adjustments (H)—  —  (0.14) 
Economic Earnings per Share$1.12  $1.38  $1.23  

39
 201720162015
    
(Loss) Income from Continuing Operations$(3,404)$119,061
$105,610
Minus/Plus: 
 
 
Unrealized Mark-to-Market Losses/(Gains) on Derivatives*14,226
(27,550)(8,444)
Realized Losses on Inventory Injection Hedges*332
683
89
Net Loss from Affiliated Companies (A)*—
—
(2,540)
Unrealized Loss on Property, Plant and Equipment (B)91,299
—
—
Net Losses from Legal Proceedings (C)56,075
—
—
Acquisition Costs (D)19,564
—
—
Other (E)*2,227
(165)(165)
Income Taxes (F)(70,834)10,813
4,424
Additional Tax Adjustments (G)(11,420)—
—
    
Economic Earnings$98,065
$102,842
$98,974
    
(Loss) Earnings per Share from Continuing Operations$(0.04)$1.56
$1.53
Minus/Plus: 
 
 
Unrealized Mark-to-Market Losses/(Gains) on Derivatives*0.18
(0.36)(0.12)
Realized Losses on Inventory Injection Hedges*—
0.01
—
Net Loss from Affiliated Companies (A)*—
—
(0.04)
Unrealized Loss on Property, Plant and Equipment (B)1.14
—
—
Net Losses from Legal Proceedings (C)0.70
—
—
Acquisition Costs (D)0.25
—
—
Other (E)*0.03
—
—
Income Taxes (F)(0.89)0.13
0.07
Additional Tax Adjustments (G)(0.14)—
—
    
Economic Earnings per Share$1.23
$1.34
$1.44


The effect of derivative instruments not designated as hedging instruments under GAAP in the statements of consolidated income (see Note 16 to the consolidated financial statements) is as follows (gains (losses) in thousands):
 201920182017
                (Losses) gains on energy-related commodity contracts$(11,748) $34,509  $(13,667) 
                (Losses) gains on interest rate contracts(2,798) 1,337  (677) 
                         Total before income taxes(14,546) 35,846  (14,344) 
  Unrealized mark-to-market gains on derivatives
held by affiliated companies, before taxes		—  —  118  
   Total unrealized mark-to-market (losses) gains on derivatives(14,546) 35,846  (14,226) 
   Realized losses on inventory injection hedges—  —  (332) 
   Loss on Property, Plant and Equipment (A)(10,745) (105,280) (91,299) 
   Net Losses from Legal Proceedings (B)(2,336) (5,910) (56,075) 
   Acquisition/Sale Costs (C)(3,468) (34,674) (19,564) 
   Customer Credits (D)—  (15,333) —  
   ERIP and OPEB (E)—  (6,733) 
   Other (F)(4,179) —  (2,227) 
   Income Taxes (G)9,423  33,753  70,834  
   Additional Tax Adjustments (H)—  —  11,420  
   Total reconciling items between (losses) income from continuing
   operations and Economic Earnings
$(25,851) $(98,331) $(101,469) 
 2017 2016 2015
                (Losses) gains on energy-related commodity contracts$(13,667) $26,935
 $8,401
                (Losses) gains on interest rate contracts(677) 647
 96
                         Total before income taxes(14,344) 27,582
 8,497
  Unrealized mark-to-market gains (losses) on derivatives
   held by affiliated companies, before taxes
118
 (32) (53)
   Total unrealized mark-to-market (losses) gains on derivatives*(14,226) 27,550
 8,444
   Realized losses on inventory injection hedges*(332) (683) (89)
   Net Loss from Affiliated Companies (A)*—
 —
 2,540
   Unrealized Loss on Property, Plant and Equipment (B)(91,299) —
 —
   Net Losses from Legal Proceedings (C)(56,075) —
 —
   Acquisition Costs (D)(19,564) —
 —
   Other (E)*(2,227) 165
 165
   Income Taxes (F)70,834
 (10,813) (4,424)
   Additional Tax Adjustments (G)11,420
 —
 —
   Total reconciling items between (losses) income from continuing
   operations and Economic Earnings
$(101,469) $16,219
 $6,636

*Certain reclassifications have been made(A) Represents impairment charges taken as follows: in 2019 on solar generating facilities along with the agreement to sell MTF and ACB, which were both driven by the prior period numbers in these tables to conform to the current period presentation. The 2015 numbers in these line items have been adjusted to be presented before income taxes.

(A) Resulting from a reserve for uncollectible accounts recorded by an Energenic subsidiary that owned and operated a central energy center and energy distribution system for a hotel, casino and entertainment complex in Atlantic City, New Jersey (see Note 7 to the consolidated financial statements). In 2014, this charge was excluded from Economic Earnings as the total economic impact of the proceedings had not been realized. During the second quarter 2015, the Company, through its investment in Energenic, reducedexpected purchase prices being less than the carrying value of the investmentassets; in this project. As such, this charge is included in Economic Earnings in 2015.

(B) Represents several impairment charges recorded during the year, including impairments2018 on solar generating facilities, landfill gas-to-energy (LFGTE)which was also primarily driven by the purchase price in the agreement to sell solar assets being less than the carrying amount of the assets, along with LFGTE assets, which was primarily driven by the remaining carrying value of these assets no longer being recoverable; and in 2017 on solar generating facilities, LFGTE long-lived assets, LFGTE intangible assets related to customer relationships, and goodwill (see Note 1 to the consolidated financial statements). The economic impact of these charges will not be realized until a future period.goodwill.


(C)(B) Represents net losses from three separate legal proceedings: (a) $55.6 million of pre-tax charges in 2017, 2018 and 2019, including interest, and legal fees and the realized difference in the market value of the commodity (including financial hedges) resulting from a ruling in a legal proceeding related to a pricing dispute between SJI and a gas supplier that began in October 2014; (b) a $9.8 million pre-tax charge in 2017, including legal fees, resulting from a settlement with a counterparty over a dispute related to a three-year capacity management contract; and (c) a $9.3 million pre-tax gain taken in 2017 resulting from a favorable FERC decision, including interest, over a tariff rate dispute with a counterparty, whereby SJI contended that the counterparty was overcharging for storage demand charges over a ten-year period. See Note 15 to the consolidated financial statements. Since these net losses relate to transactions that primarily occurred in prior periods, these net losses are excluded from Economic Earnings.


(D)(C) Represents costs incurred on the agreement to acquire the assets of Elizabethtown GasETG and Elkton Gas (see Note 1ELK, including legal, consulting and other professional fees, and costs incurred to prepare to exit the consolidated financial statements). SinceTSA. Also included here are costs incurred on the economic impact will not be realized until future periods, this amount is excluded from Economic Earnings. sales of solar projects and the retail gas business of SJE, partially offset by gains recorded on the sale of solar assets and sales of certain SRECs.


(D) Represents credits to ETG and ELK customers that were required as part of the Acquisition.

(E) Represents costs incurred on the Company's ERIP as well as the benefit of amending the Company's OPEB.

(F) Represents severance and other employee separation costs taken in 2019. Included in this amount in 2017 are amendments made to an existing interest rate derivative linked to unrealized losses previously recorded in AOCL, which SJI reclassified from AOCL to Interest Charges on the consolidated statements of income as a result of the prior hedged transactions being deemed probable of not occurring. Since the economic impact will not be realized until future periods, this amount is excluded from Economic Earnings. Also included is additional depreciation expense within Economic Earnings on two solar generating facilities where an impairment charge was recorded in the past, which reduced the depreciable basis and recurring depreciation expense, and the related reduction in depreciation expense is being added back. AOCL.


(F)(G) Determined using a combined average statutory tax rate of approximately 26%, 25% and 39% for 2019, 2018 and 2017, and 40% for 2016 and 2015.respectively.


(G)(H) Represents one-time tax adjustments, most notably for Tax Reform, which was signed into law in December 2017. See Note 4 to the consolidated financial statements.

Reform.
Gas

40

SJI Utilities:

SJG Utility Operations - The following tables summarize the composition of gasSJG utility operations operating revenues and Utility Margin for the years ended December 31 (in thousands, except for customer and degree day data):


 201920182017
Utility Operating Revenues:
Firm Sales-
   Residential$346,020  61 %$316,593  58 %$269,721  52 %
   Commercial76,031  13 %68,286  13 %61,514  12 %
   Industrial3,833  1 %4,630  1 %4,235  1 %
   Cogeneration and Electric Generation3,854  1 %9,706  2 %5,519  1 %
Firm Transportation -
   Residential10,626  2 %12,614  2 %14,162  3 %
   Commercial37,805  7 %37,764  7 %34,986  7 %
   Industrial24,063  4 %23,993  4 %20,576  4 %
   Cogeneration and Electric Generation6,138  1 %4,595  1 %4,360  1 %
      Total Firm Revenues508,370  90 %478,181  88 %415,073  81 %
Interruptible Sales63  —  349  —  25  —  
Interruptible Transportation1,223  —  1,178  —  867  —  
Off-System Sales51,787  9 %59,157  11 %92,376  18 %
Capacity Release6,550  1 %7,963  1 %7,695  1 %
Other1,233  — %1,172  — %1,218  — %
 569,226  100 %548,000  100 %517,254  100 %
Less: Intercompany Sales5,433  6,192  4,772  
Total Utility Operating Revenues563,793  541,808  512,482  
Less:
     Cost of Sales - Utility211,344  209,649  204,432  
     Less: Intercompany Cost of Sales5,433  6,192  4,772  
Total Cost of Sales - Utility (Excluding Depreciation)205,911  203,457  199,660  
Conservation Recoveries *13,689     14,136  7,003     
RAC recoveries *21,553     17,099  11,014     
EET Recoveries*3,304     1,772  1,284     
Revenue Taxes1,452     1,074  1,162     
     Utility Margin**$317,884  $304,270  $292,359  
Utility Margin:
Residential$213,787  65 %$213,026  70 %$180,106  62 %
Commercial and Industrial90,489  29 %89,172  29 %76,491  26 %
Cogeneration and Electric Generation4,896  2 %4,975  1 %4,762  1 %
Interruptible88  —  105  —  63  —  
Off-system Sales & Capacity Release3,333  1 %4,434  2 %5,051  2 %
Other Revenues1,646  — %1,942  1 %2,107  1 %
   Margin Before Weather Normalization & Decoupling314,239  97 %313,654  103 %268,580  92 %
   CIP mechanism(844) 1 %(12,382) (4)%20,062  7 %
   EET mechanism4,489  2 %2,998  1 %3,717  1 %
     Utility Margin**$317,884  100 %$304,270  100 %$292,359  100 %

41
 December 31, 2017 December 31, 2016 December 31, 2015
            
Utility Operating Revenues:           
Firm Sales-           
   Residential$269,721
 52% $259,881
 56% $317,491
 59 %
   Commercial61,514
 12% 55,795
 12% 69,845
 13 %
   Industrial4,235
 1% 3,126
 1% 4,083
 1 %
   Cogeneration and Electric Generation5,519
 1% 5,257
 1% 5,666
 1 %
Firm Transportation -           
   Residential14,162
 3% 14,989
 3% 16,594
 3 %
   Commercial34,986
 7% 32,423
 7% 30,602
 6 %
   Industrial20,576
 4% 19,594
 4% 22,106
 4 %
   Cogeneration and Electric Generation4,360
 1% 4,472
 1% 4,920
 1 %
      Total Firm Revenues415,073
 81% 395,537
 85% 471,307
 88 %
            
Interruptible Sales25
 —
 18
 —
 300
 —
Interruptible Transportation867
 —
 928
 —
 1,373
 —
Off-System Sales92,376
 18% 51,661
 11% 49,624
 9 %
Capacity Release7,695
 1% 11,778
 3% 10,296
 2 %
Other1,218
 —% 1,133
 1% 1,390
 1 %
 517,254
 100% 461,055
 100% 534,290
 100 %
Less: Intercompany Sales4,772
   7,236
   5,527
  
Total Utility Operating Revenues512,482
   453,819
   528,763
  
            
Less:           
     Cost of Sales - Utility204,432
   174,390
   245,290
  
     Less: Intercompany Cost of Sales4,772
   7,236
   5,527
  
Total Cost of Sales - Utility (Excluding Depreciation)199,660
   167,154
   239,763
  
Conservation Recoveries *7,003
  
 9,202
  
 21,226
  
RAC recoveries *11,014
  
 9,326
  
 9,134
  
EET Recoveries*1,284
   2,718
   3,611
  
Revenue Taxes1,162
  
 1,109
  
 1,250
  
     Utility Margin**$292,359
   $264,310
   $253,779
  
            
Utility Margin:           
Residential$180,106
 62% $162,820
 62% $169,455
 67 %
Commercial and Industrial76,491
 26% 69,396
 26% 72,149
 28 %
Cogeneration and Electric Generation4,762
 1% 4,898
 2% 4,738
 2 %
Interruptible63
 —
 79
 —
 120
 —
Off-system Sales & Capacity Release5,051
 2% 4,731
 2% 4,270
 2 %
Other Revenues2,107
 1% 2,213
 1% 2,582
 1 %
   Margin Before Weather Normalization & Decoupling268,580
 92% 244,137
 93% 253,314
 100 %
   CIP mechanism20,062
 7% 16,615
 6% (1,798) (1)%
   EET mechanism3,717
 1% 3,558
 1% 2,263
 1 %
     Utility Margin**$292,359
 100% $264,310
 100% $253,779
 100 %



* Represents expenses for which there is a corresponding credit in operating revenues. Therefore, such recoveries have no impact on SJG's financial results.
** Utility Margin is a non-GAAP financial measure and is further defined under the caption "Utility Margin" below.


Operating Revenues - GasSJG Utility Operations 20172019 vs. 20162018 - Revenues increased $56.2$21.2 million, or 12.2%3.9%, during 20172019 compared with 2016.2018. Excluding intercompany transactions, revenues increased $58.7$22.0 million, or 12.9%4.0%, during 20172019 compared with 2016. 2018.

The main driver for the increased revenue iswas higher firm sales and Off-System Sales (OSS). Total firm revenue increased $19.5 million, or 4.9%, in 2017 compared with 2016 as a result of 6,008 additional customers compared with 2016. Additionally, firm sales increasedprimarily due to base rate increases related tocustomer growth and the settlementroll-in of SJG's base rate case, effective November 1, 2017, as discussed in Note 10 to the consolidated financial statements.AIRP II investments. While changes in gas costs and BGSS recoveries/refunds fluctuate from period to period, SJG does not profit from the sale of the commodity. Therefore, corresponding fluctuations in Operating Revenue or Cost of Sales have no impact on SJG profitability, as further discussed below under the caption "Utility Margin." While warmer weather

Partially offsetting these increases was the impact of decreased firmOSS and capacity release sales, volumewhich was primarily due to fluctuations in commodity pricing and revenue,capacity values during the revenue decrease has little impact on SJG profitability underperiod. However, the operation of the CIP, as discussed below under the caption "Utility Margin."

Higher OSS volumes and higher unit prices resulted in a $40.7 million, or 78.8%, increase in OSS revenues during 2017 compared with 2016. The impact of changes in OSS and capacity release activity doesdo not have a material impact on the earnings of SJG, as SJG is required to return 85%the majority of the profits of such activity to its ratepayers.

Operating Revenues
Utility Margin - GasSJG Utility Operations 20162019 vs. 20152018 - Revenues decreased $74.9 million, or 14.2%, during 2016 compared with 2015 after eliminating intercompany transactions. Total firm revenue was $75.8 million, or 16.1%, lower in 2016 compared to the prior year due to several factors. Firm throughput was lower during 2016, compared to the prior year. The impact of this reduction in throughput lowered SJG’s recovery of natural gas costs through its BGSS mechanism by $38.3 million. In addition, SJG reduced its BGSS rate effective October 1, 2015 and 2016 by 18.6% and 32.9%, respectively, further reducing revenue by $34.7 million during 2016. Finally, SJG provided a $20.0 million and $10.0 million BGSS bill credit to its residential and small commercial customers in January 2016 and December 2016, respectively, of which $28.0 million reduced revenue for 2016, after consideration for sales tax. While changes in natural gas costs and BGSS recoveries/refunds fluctuate from period to period, SJG does not profit from the sale of the commodity. Therefore, fluctuations in Utility Operating Revenue and Cost of Sales, such as those discussed above, did not have an impact on SJG’s profitability. The addition of 4,525 customers in 2016 partially offset the decreases mentioned above. While warmer weather decreased firm sales volume and revenue, the revenue decrease has little impact on SJG profitability under the operation of the CIP, as discussed below under the caption "Utility Margin."

Higher OSS volumes resulted in a $2.0 million, or 4.1%, increase in OSS revenues during 2016, compared with 2015. The impact of changes in OSS activity does not have a material impact on the earnings of SJG, as SJG is required to return 85% of the profits of such activity to its ratepayers. Earnings from OSS can be seen in the "Utility Margin" table above.

Utility Margin - Management uses Utility Margin, a non-GAAP financial measure, when evaluating the operating results of SJG. Utility Margin is defined as natural gas revenues less natural gas costs, regulatory rider expenses and related volumetric and revenue-based energy taxes. Management believes that Utility Margin provides a more meaningful basis for evaluating utility operations than revenues since natural gas costs, regulatory rider expenses and related energy taxes are passed through to customers. Natural gas costs are charged to operating expenses on the basis of therm sales at the prices approved by the BPU through SJG’s BGSS clause. Non-GAAP financial measures are not in accordance with, or an alternative to, GAAP and should be considered in addition to, and not as a substitute for, the comparable GAAP measure.


Utility Margin increased $28.0$13.6 million, or 10.6%,4.5 %, during 20172019 compared with 2016.2018. The rolling into base ratestwelve-month comparative period increase is primarily due to customer growth and the roll-in of SHARP and AIRP II investments of approximately $187.5 million contributed approximately $14.2 million of additional Utility Margin in 2017. In addition,investments. Also contributing to the rolling into base rates of certain infrastructure and system improvement investments andcomparative period increase was the related expenses, effective November 1, 2017, contributed approximately $10.8 million of additional Utility Margin in 2017. Net customer additions of 6,008 over the twelve-month period ended December 31, 2017, representing 1.6% growth over the prior year, contributed approximately $2.4 million in additional Utility Margin.

The CIP tracking mechanism, which adjusts earnings when actual usage per customer experienced during the period varies from an established baseline usage per customer. TheAs reflected in the Utility Margin table above, the CIP mechanism protected $20.1 million, or $12.0 million after taxes, during 2017, due to weather that was 11.5% warmer than average and customer usage variations.


Totalincreased Utility Margin in 2016 increased $10.5 million, or 4.1%, from 2015. 2019 compared with 2018 primarily due to variation in customer usage compared to the prior year.


42

ETG Utility Operations:

The rolling into base ratesfollowing tables summarize the composition of SHARP investments of approximately $36.6 million on October 1, 2015 contributed approximately $3.5 million of additional Utility Margin in 2016. In addition,regulated natural gas utility operations, operating revenues and margin at ETG for the rolling into base rates of AIRP investments of $74.5 million on December 1, 2016 contributed approximately $1.5 million of additional Utility Margin in 2016. Net customer additions of 4,525 over the twelve-month periodtwelve months ended December 31, 2016, representing 1.2% growth over2019 and for the priorpost-Acquisition period during 2018, which was July 1, 2018 through December 31, 2018 ("post-Acquisition period") (in thousands, except for degree day data):

Utility Operating Revenues:Twelve Months Ended December 31, 2019July 1, 2018 through December 31, 2018
Firm & Interruptible Sales - 
Residential$211,639  $80,215  
Commercial & Industrial66,769  26,784  
Firm & Interruptible Transportation -
Residential1,632  508  
Commercial & Industrial34,846  15,148  
Other10,242  2,949  
Total Firm & Interruptible Revenues325,128  125,604  
Less:
Total Cost of Sales - Utility (Excluding depreciation)141,269  53,491  
Regulatory Rider Expenses*7,989  2,068  
Utility Margin**$175,870  $70,045  
Utility Margin:
Residential$110,519  $43,293  
Commercial & Industrial63,605  26,034  
Regulatory Rider Expenses*1,746  718  
Utility Margin**$175,870  $70,045  
Degree Days4,6721,724

*Represents expenses for which there is a corresponding credit in operating revenues.  Therefore, such recoveries have no impact on ETG's financial results.

**Utility Margin is a non-GAAP financial measure and is further defined under the caption "Utility Margin" above. The definition of Utility Margin is the same for SJG, ETG and ELK utility operations.

ETG consists of natural gas distribution to residential, commercial and industrial customers in northern and central New Jersey. ETG's operating revenues of $325.1 million and $125.6 million for the year contributed approximately $4.0ended December 31, 2019 and the post-Acquisition period of 2018, respectively, consist of firm sales and transportation, as well as interruptible sales and transportation. ETG does not have any off-system sales. The Utility Margin at ETG of $175.9 million in additionaland $70.0 million for the year ended December 31, 2019 and the post-Acquisition period of 2018, respectively, is considered a non-GAAP measure and calculated the same as SJG as discussed under "Utility Margin" above.

ELK Utility Margin.Operations - The activities of ELK utility operations are not material to SJI's financial results.


The CIP mechanism protected $16.6 million, or $9.9 million after taxes, during 2016, due to weather that was 8.1% warmer than average and customer usage variations.

43


Operating Revenues - Energy Group 20172019 vs. 20162018 - Combined revenues for Energy Group, net of intercompany transactions, increased $147.2decreased $221.8 million, or 30.3%24.5%, to $632.6$683.0 million, in 20172019 compared with 2016.2018. The significant drivers for the overall change were as follows:


Revenues from retail gaswholesale energy operations at SJE, net of intercompany transactions, increased $18.0 million, or 19.9%, to $108.7 million in 2017 compared with 2016, primarily due to a 26.3% increase in the average monthly NYMEX settle price, along with a 19.3% increase in sales volumes driven by additional contracts entered into in 2017. This was partially offset with the change in unrealized gains and losses recorded on forward financial contracts due to price volatility, which is excluded for Economic Earnings, as defined above, and represented a total decrease of $6.3 million compared to the prior year period.

Revenues from retail electric operations at SJE,SJRG, net of intercompany transactions, decreased $2.8$27.8 million or 1.6%, to $172.1$607.0 million in 2017for 2019 compared with 20162018. This decrease was primarily due to an overall decrease in sales due to cold weather experienced in the expirationfirst quarter of 2018 as compared to a large contract with a group of school boards.warmer winter in 2019. Also contributing to thisthe overall comparative period decrease was the change in unrealized gains and losses recorded on forward financial contracts due to price volatility, which is excluded for Economic Earnings and represented a total decrease of $0.8$43.9 million in 2019 compared with 2018. Partially offsetting these decreases was revenue earned on gas supply contracts with electric generation facilities, including three that began operations in late 2018 or in the first quarter of 2019.

The retail gas operations at SJE were sold November 30, 2018. As a result, the Company recorded no revenues from this business in 2019, as compared to revenues, net of intercompany transactions, of $98.6 million in 2018.

Revenues from retail electric operations at SJE, net of intercompany transactions, decreased $95.3 million, or 55.7%, to $75.9 million for 2019 compared with 2018, primarily due to lower average LMP per megawatt hour and lower overall sales volumes. Also contributing to the prior year period.comparative period decrease was the change in unrealized gains and losses recorded on forward financial contracts due to price volatility, which is excluded for Economic Earnings and represented a total decrease of $3.1 million in 2019 compared with 2018.


SJE uses forward financial contracts to mitigate commodity price risk on fixed price electric contracts. In accordance with GAAP, the forward financial contracts are recorded at fair value, with changes in fair value recorded in earnings in the period of change. The related customer contracts are not considered derivatives and, therefore, are not recorded in earnings until the electricity is delivered. As a result, earnings are subject to volatility as the market price of the forward financial contracts change, even when the underlying hedged value of the customer contract is unchanged. Over time, gains or losses on the sale of the fixed price electric under contract will be offset by losses or gains on the forward financial contracts, resulting in the realization of the profit margin expected when the transactions were initiated. The retail electric operations at SJE serve both fixed and market-priced customers.


Revenues from wholesale energy operations at SJRG, net of intercompany transactions, increased $131.7 million to $351.6 million in 2017 compared with 2016. This increase was primarily due to revenues earned on gas supply contracts with three electric generation facilities, which represented a total increase of $168.1 million. Partially offsetting this increase was the change in unrealized gains and losses recorded on forward financial contracts due to price volatility, which is excluded for Economic Earnings and represented a total decrease of $33.5 million in 2017 compared with 2016.

Operating Revenues - Energy Services 20172019 vs. 20162018 - Combined revenues for Energy Services, net of intercompany transactions, increased $0.7decreased $17.7 million, or 0.7%26.9%, to $98.0$48.1 million in 20172019 compared with 2016.2018. The significant drivers for the overall change were as follows:


Revenues from on-site energy production at Marina, net of intercompany transactions, increased $2.1decreased $17.8 million, or 2.4%27.9%, to $91.5to$46.1 million in 20172019 compared with 2016, primarily due to an increase in solar renewable energy credits (SRECs) transferred as a result of more solar projects being online compared with 2016. Solar revenues, net of2018. Excluding intercompany transactions, which is included in revenues from on-site energy production above, increased $1.3 million, or 2.4%, to $56.5at Marina decreased $23.6 million in 20172019 compared with 2016.

SRECs represent the renewable energy attribute of the solar electricity generated that can be sold to customers. Marina does not recognize revenue, or the related margin, until the SREC is certified and transferred to the customer’s electronic account. Customers may purchase SRECs to comply with solar requirements under various state renewable energy regulations. Approximately 73% of Marina’s 2017 solar production is in New Jersey, 9% is in Massachusetts, 15% is in Maryland, and 3% is in Vermont.

Marina hedges a portion of its anticipated SREC production through the use of forward sales contracts. The hedged percentage of projected SREC production related to in-service assets in New Jersey is 93% and 68% for energy years ending May 31, 2018 and 2019, respectively, and in Massachusetts is 54% for energy year ending December 31, 2018. SREC production related to in-service assets in Maryland and Vermont is currently unhedged.

Installed capacity was 201 MW and 198 MW at December 31, 2017 and 2016, respectively.

Revenues from appliance service operations at SJESP, net of intercompany transactions, decreased $1.4 million in 2017 compared with 2016These decreases were primarily due to less SREC revenue in 2019 compared to the prior year as a result of the sale of certainsolar assets of SJESP's residential and small commercial HVAC and plumbing business to a third party which was completed on September 1, 2017buyer (see Note 1 to the consolidated financial statements).


Operating Revenues - Energy Group 2016 vs. 2015 - Combined revenues for Energy Group, net of intercompany transactions, increased $125.3 million, or 34.8%, to $485.4 million in 2016 compared with 2015.

Revenues from retail gas operations at SJE, net of intercompany transactions, increased $3.7 million, or 4.3%, to $90.6 million in 2016 compared with 2015. The increase in gas revenues was primarily due to the net change in unrealized gains and losses recorded on forward financial contracts due to price volatility, which is excluded for Economic Earnings and represented a total increase of $12.2 million in 2016 compared with 2015. This was partially offset with a 7.7% decrease in the average monthly NYMEX settle price.

Revenues from retail electric operations at SJE, net of intercompany transactions, increased $30.2 million, or 20.8%, to $174.9 million in 2016 compared with 2015, primarily due to a 17.9% increase in sales volumes, which was driven by additional electric contracts entered into during 2016. Also contributing was the net change in unrealized gains and losses recorded on forward financial contracts due to price volatility, which is excluded for Economic Earnings and represented a total increase of $2.3 million in 2016 compared with 2015.

SJE uses forward financial contracts to mitigate commodity price risk on fixed price electric contracts. In accordance with GAAP, the forward financial contracts are recorded at fair value, with changes in fair value recorded in earnings in the period of change. The related customer contracts are not considered derivatives and, therefore, are not recorded in earnings until the electricity is delivered. As a result, earnings are subject to volatility as the market price of the forward financial contracts change, even when the underlying hedged value of the customer contract is unchanged. Over time, gains or losses on the sale of the fixed price electric under contract will be offset by losses or gains on the forward financial contracts, resulting in the realization of the profit margin expected when the transactions were initiated. The retail electric operations at SJE serve both fixed and market-priced customers.

Revenues from the wholesale energy operations at SJRG, net of intercompany transactions, increased $91.6 million to $220.7 million in 2016 compared with 2015, primarily due to revenues earned on gas supply contracts with two electric generation facilities, along with additional transportation capacity. Also contributing was the net change in unrealized gains and losses recorded on forward financial contracts due to price volatility, which is excluded for Economic Earnings and represented a total increase of $3.9 million in 2016 compared with 2015. These were partially offset with a 7.7% decrease in the average monthly NYMEX settle price. As discussed in Note 1 to the consolidated financial statements, revenues and expenses related to the energy trading activities of SJRG are presented on a net basis in Operating Revenues - Nonutility on the statements of consolidated income.

Operating Revenues - Energy Services 2016 vs. 2015 - Combined revenues for Energy Services, net of intercompany transactions, increased $26.6 million, or 37.6%, to $97.3 million in 2016 compared with 2015.

Revenues from on-site energy production at Marina, net of intercompany transactions, increased $29.9 million, or 50.2%, to $89.4 million in 2016 compared with 2015. These increases were primarily due to higher prices on SREC's compared to the previous periods, an increase in SRECs transferred due to new solar projects and the revenues earned at several entities that became wholly owned by Marina as of December 31, 2015. Solar revenues, net of intercompany transactions, which is included in revenues from on-site energy production above, increased $15.3 million, or 38.5%, to $55.1 million in 2016 compared with 2015.

SRECs represent the renewable energy attribute of the solar electricity generated, which can be sold to customers. Marina does not recognize revenue, or the related margin, until the SREC is certified and transferred to a customer’s electronic account. Customers may purchase SRECs to comply with solar requirements under various state renewable energy regulations. Approximately 76% of Marina’s solar production is in New Jersey.

Marina hedges a portion of its anticipated SREC production through the use of forward sales contracts. The hedged percentage of projected SREC production related to in-service assets in New Jersey is 92% and 66% for energy years ending May 31, 2017 and 2018, respectively.

Installed capacity was 198 MW and 135 MW at December 31, 2016 and 2015, respectively.


Revenues from appliance service operations at SJESP net of intercompany transactions, decreased $3.3 million, or 29.4%, to $7.9 million in 2016for 2019 compared with 2015, primarily due to lower installation jobs compared to the prior year.2018 was not significant.


Gross Margin - NonutilityEnergy Group & Energy Services - Gross margin for the nonutilityEnergy Group and Energy Services businesses is a GAAP measure and is defined as revenue less all costs that are directly related to the production, sellingsale and delivery of SJI's products and services. These costs primarily include natural gas and electric commodity costs as well as certain payroll and related benefits. On the statements of consolidated income, revenue is reflected in Operating Revenues - Nonutility and the costs are reflected in Cost of Sales - Nonutility. As discussed in Note 1 to the consolidated financial statements, revenues and expenses related to the energy trading activities of the wholesale energy operations at SJRG are presented on a net basis in Operating Revenues - Nonutility on the statements of consolidated income.


Gross margin is broken out between Energy Group and Energy Services below, which are each comprised of a group of segments as described in Note 8 to the consolidated financial statements.


44

Gross Margin - Energy Group 20172019 vs. 20162018 - For 2017, combinedCombined gross margins for Energy Group decreased $87.6$99.1 million to a loss of $6.9$9.7 million for 2019 compared with 2016. This decrease is primarily due to2018. The significant drivers for the following:overall change were as follows:


Gross margin from SJE’s retail gas and other operations decreased $6.0 million to $7.5 million in 2017 compared with 2016. This was primarily due to the change in unrealized gains and losses recorded on forward financial contracts due to price volatility, which is excluded for Economic Earnings and represented a total decrease of $6.3 million in 2017 compared with 2016.

Gross margin from SJE’s retail electric operations decreased $3.0 million to $7.5 million in 2017 compared with 2016. This decrease was primarily due to lower sales volumes resulting from the expiration of a large contract with a group of school boards, along with the change in unrealized gains and losses recorded on forward financial contracts due to price volatility, which is excluded for Economic Earnings and represented a total decrease of $0.8 million.

•Gross margin from the wholesale energy operations at SJRG decreased $78.8$89.7 million to a loss of $22.1$11.2 million in 2017for 2019 compared with 2016,to 2018, primarily due to the following:

$49.6 million decrease resulting from an unfavorable court ruling related to a pricing dispute between SJRG and a supplier (see Note 15 to the consolidated financial statements), which is excluded for Economic Earnings.
$33.5$43.9 million decrease resulting from the change in unrealized gains and losses recorded on forward financial contracts due to price volatility, which is excluded for Economic Earnings.
$9.5 million decrease resulting from a settlement of a legal dispute related to a three-year capacity management contract, which is excluded for Economic Earnings.
$7.4 million increase resulting from favorable FERC decision over a tariff rate disputeEarnings, along with a counterparty, whereby SJI contended that the counterparty was overcharging for storage demand charges over a ten year period, which is excluded for Economic Earnings.
The remaining $6.4 million increase resulted from higherlower margins earned on daily energy trading activities colder weather conditionsand an overall decrease in the fourth quarter of 2017, and additional margins earned during 2017 on gas supply contracts with three electric generation facilities.sales due to a warmer winter in 2019 compared to 2018.


TheWe expect the wholesale energy operations at SJRG expect to continue to add incremental margin from marketing and related opportunities in the Marcellus region, capitalizing on its established presence in the area. Future margins could fluctuate significantly due to the volatile nature of wholesale gas prices. As of December 31, 2017,2019, the wholesale energy operations had 8.7 Bcf5.4 MMdts of storage and 584,254503,291 dts/day of firm transportation under contract.


•The retail gas operations at SJE were sold November 30, 2018. As a result, the Company recorded no margin from this business during 2019, as compared to $4.7 million for 2018.

•Gross Margin - Energy Services 2017 vs. 2016 - For 2017, combined gross margins for Energy Services increased $2.8margin from SJE’s retail electric operations decreased $4.7 million to $90.9a loss of $1.5 million in 2019 compared with 2016. This increase is2018, primarily due to the following:

Gross margin from on-site energy production at Marina increased $4.1 million to $88.2 million in 2017 compared with 2016, primarily due to an increase in SRECs transferred as a result of more solar projects being online compared to the same period in 2016, along with better production.

Gross margin from appliance service operations at SJESP decreased $1.4 million in 2017 compared with 2016 primarily due to the sale of certain assets of SJESP's residential and small commercial HVAC and plumbing business to a third party, which was completed on September 1, 2017 (see Note 1 to the consolidated financial statements).


Gross Margin - Energy Group 2016 vs. 2015 - For 2016, combined gross margins for Energy Group, net of intercompany transactions, increased $23.5 million to $80.7 million compared with 2015. This increase is primarily due to the following:

Gross Margin from SJE's retail gas and other operations increased $11.1 million to $13.5 million in 2016 compared with 2015, primarily due to the net change in unrealized gains and losses recorded on forward financial contracts due to price volatility, which is excluded for Economic Earnings and represented a total increasedecrease of $12.2$3.1 million in 20162019 compared with 2015. The partially offsetting decrease does not represent a significant change.

Gross Margin from SJE's retail electric operations increased $4.4 million to $10.5 million in 2016 compared with 2015, primarily due to margins earned on additional electric contracts entered into in 2016.2018. Also contributing was the net change in unrealized gains and losses recorded on forward financial contracts due to price volatility, which is excluded for Economic Earnings and represented a total increase of $2.3 million in 2016 compared with 2015.

Gross Margin from the wholesale energy operations at SJRG increased $8.1 million to $56.7 million in 2016 compared with 2015. The increase in gross margin was primarily due to additional transportation capacity along with margins earned on gas supply contracts with two electric generation facilities. Also contributing was the net change in unrealized gains and losses recorded on forward financial contracts due to price volatility, which is excluded for Economic Earnings and represented a total increase of $3.9 million in 2016 compared with 2015.

The wholesale energy operations at SJRG expect to continue to add incremental margin from marketing and related opportunities in the Marcellus region, capitalizing on its established presence in the area. Future margins could fluctuate significantly due to the volatile nature of wholesale gas prices. As of December 31, 2016, the wholesale energy operations had 7.9 Bcf of storage and 511,587 dts/day of transportation under contract.comparative period decreases is overall lower sales volumes.


Gross Margin - Energy Services 20162019 vs. 20152018 - For 2016, combinedCombined gross margins for Energy Services net of intercompany transactions, increased $34.1decreased $24.2 million to $88.2$41.0 million for 2019 compared with 2015. This increase is primarily due to2018. The significant drivers for the following:overall change were as follows:


•Gross Marginmargin from on-site energy production at Marina increased $34.6decreased $24.3 million to $84.0$39.0 million in 20162019 compared with 2015. Gross margin as a percentage of Operating Revenues increased 10.9 percentage points in 2016 compared with 2015. These increases are2018, primarily due to several higher margin renewable energy projects that began operations over the past twelve months, along with higher prices on SRECsless SREC revenue in 2019 compared to the previous year. Also contributingprior year as a result of the sale of solar assets to a third party buyer (see Note 1 to the increase were margins earned at several entities that became wholly owned by Marina as of December 31, 2015.consolidated financial statements).


Gross Margin•The change in gross margin from the appliance service operations at SJESP did not change significantly in 20162019 compared with 2015.2018 was not significant.



Operations Expense - All Segments - A summary of net changes in operations expense follows (in thousands):
 
 2019 vs. 20182018 vs. 2017
SJI Utilities:
   SJG Utility Operations$(4,282) $16,316  
   ETG Utility Operations23,681  52,070  
   ELK Utility Operations812  1,218  
      Subtotal SJI Utilities20,211  69,604  
   Energy Group:
      Wholesale Energy Operations(2,080) (1,560) 
      Retail Gas and Other Operations(12,272) 1,705  
      Retail Electric Operations1,148  (452) 
         Subtotal Energy Group(13,204) (307) 
   Energy Services:
      On-Site Energy Production(8,633) 9,432  
      Appliance Service Operations(210) (2,227) 
         Subtotal Energy Services(8,843) 7,205  
Midstream(138) 291  
Corporate & Services and Intercompany Eliminations(16,136) 10,302  
      Total Operations Expense$(18,110) $87,095  


45

 2017 vs. 20162016 vs. 2015
Gas Utility Operations$3,383
$(12,227)
Nonutility:  
   Energy Group:  
      Wholesale Energy Operations(130)1,175
      Retail Gas and Other Operations1,221
3,239
      Retail Electric Operations273
(1,778)
         Subtotal Energy Group1,364
2,636
   Energy Services:  
      On-Site Energy Production5,918
11,282
      Appliance Service Operations(928)(586)
         Subtotal Energy Services4,990
10,696
            Total Nonutility6,354
13,332
Corporate & Services and Intercompany Eliminations12,506
2,180
      Total Operations Expense$22,243
$3,285

GasOperations - In connection with the Acquisition, SJI consolidated the accounts of ETG and ELK utility operations expense increased $3.4beginning July 1, 2018 (see Note 20 to the consolidated financial statements), contributing an increase to Operations Expense of $36.9 million for the first six months of 2019. This increase to Operations Expense for the first six months of 2019 was partially offset by a $12.4 million decrease in 2017Operations Expense at ETG and ELK for the last six months of 2019 compared with 2016. The increasethe same period in 2018, which was primarily due to higher corporate support, governance and compliance costs, higher compensation costs and higher costs relatedcredits issued to ETG customers during the operationlast six months of SJG's compressed natural gas stations. The increases2018 that were partially offset by a decrease associated withrequired as part of the New Jersey Clean Energy Program and Energy Efficiency Programs which are recovered on a dollar-for-dollar basis; therefore, SJG experiences an offsetting decrease in revenue during 2017.Acquisition.


GasSJG utility operations expense decreased $12.2$4.3 million in 20162019 compared with 2015. This2018. The decrease was primarily due to lower expenses associated with the New Jersey Clean Energy Programoperations of SJG’s CLEP and Energy Efficiency Programs.EEP, which experienced an aggregate net decrease. Such costs are recovered on a dollar-for-dollar basis; therefore, SJG experiencesexperienced an offsetting decrease in revenue during 2016. This was due to a reduction2019 compared with 2018. Partially offsetting this decrease were higher expenses in the approved level of recovery of such costs, as well as lower recoveries resulting from warmer weather. Also contributing to the decrease from the prior year were expensesvarious areas, including those associated with write-offs of uncollectible customer accounts receivable, which resulted from fewer customer accounts being eligible to be written off in 2016 as a result of an improvement in the aging of receivables.corporate support, governance and compliance costs.


NonutilityCombined operations expense increased $6.4for the Energy Group and Energy Services areas of business decreased $22.0 million in 20172019 compared with 2016,2018, primarily due to additional personnel, governancethe following:

•Consulting and compliancelegal costs related to the sale of Marina's solar assets to a third-party buyer that were incurred in 2018 did not recur in 2019 (see Note 1 to support continued growth.the consolidated financial statements)

•No expenses at the retail gas segment during 2019 resulting from the sale of the SJE gas business during the fourth quarter of 2018 (see Note 1 to the consolidated financial statements)
•Lower legal fees incurred at the wholesale energy operations at SJRG from an unfavorable court ruling related to a pricing dispute between SJRG and a supplier that was resolved in 2019 (see Note 15 to the consolidated financial statements).

The Corporate & Services segment contributedhad a $12.5$16.1 million increasedecrease in total operations expenseOperations Expense during 2019 compared with 2018, primarily due to the Company incurring less legal, consulting and other professional fees related to the Acquisition than the prior year period, as the costs incurred onin 2018 were to finalize the agreement to acquire the assets of Elizabethtown Gas and Elkton GasAcquisition (see Note 1 to the consolidated financial statements). These include finders fees, consulting and legal charges, among others. This is partially offset by intercompany eliminations.

Nonutility operations expense increased $13.3 million in 2016 compared with 2015 primarily due to operating expenses incurred at several entities that became wholly owned by Marina as of December 31, 2015 along with operating expenses at several renewable energy projects that commenced operations over the past twelve months. Also contributing to the increase is additional personnel, governance and compliancedecrease were costs associated with the ERIP recorded during 2018 that did not recur in 2019. These decreases were partially offset with costs incurred during 2019 to support continued growth.prepare to exit the TSA, along with intercompany eliminations.
 
Other Operating Expenses - All Segments - A summary of changes in other consolidated operating expenses (in thousands):
 
2017 vs. 20162016 vs. 2015 2019 vs. 20182018 vs. 2017
Impairment Charges$91,299
$—
Impairment Charges$(94,535) $13,981  
Maintenance$2,178
$1,366
Maintenance$5,179  12,435  
Depreciation$10,329
$17,938
Depreciation$3,030  (3,995) 
Energy and Other Taxes$145
$316
Energy and Other Taxes$2,459  3,050  
Net Gain on Sales of AssetsNet Gain on Sales of Assets$12,246  (15,379) 
 

Impairment Charges - Marina incurred approximately $91.3$10.8 million of non-cash impairment charges during 2019 related to the year, including impairmentsexpected purchase price of two of the unsold solar sites being less than their carrying value, along with charges resulting from the purchase price in the agreement to sell MTF and ACB being less than its carrying value (see Note 1 to the consolidated financial statements). Marina incurred approximately $105.3 million of impairment charges on solar generating facilities landfill gas-to-energy (LFGTE) long-lived assets,and LFGTE assets customer relationships, and goodwillin 2018, which were driven by the purchase price in the agreement to sell solar assets being less than the carrying amount of the assets, along with the carrying value of LFGTE assets no longer being recoverable (see Note 1 to the consolidated financial statements). These impairment charges were recorded in the On-Site Energy Production segment.


Maintenance Expense - Maintenance expense increased $2.2$5.2 million during 2017in 2019 compared with 20162018. This was primarily due to SJI consolidating the accounts of ETG and ELK gas utility operations for the first six months of 2019, which included $3.8 million of maintenance expense during that period, with no corresponding maintenance expense during the first six months of 2018. Also contributing was increased maintenance of services activity and higher levels of Remediation Adjustment Clause (RAC) amortization.RAC amortization, both at SJG. This increase in RAC-related expenses does not affect earnings, as SJG recognizes an offsetting amount in revenues. Maintenance
46

Depreciation Expense - Depreciation expense increased $1.4$3.0 million during 2016in 2019 compared with 20152018, primarily due to increased field activity related to the maintenanceimpact of services.
Depreciation Expense - Depreciation increased $10.3 million in 2017 compared with 2016 primarily due to increased investment in property, plantconsolidating the accounts of ETG and equipment by theELK gas utility operations at SJG and on-site energy production at Marina. Depreciation increased $17.9 million in 2016 compared with 2015 primarily due to depreciation incurred at several entities that became wholly owned by Marina asfor the first six months of December 31, 2015,2019, along with increased investment in property, plant and equipment by the gas utility operations atof SJG and on-site energy productionETG. This was partially offset by reduced depreciation expense at Marina.
Energy and Other Taxes - The change in energy and other taxes in 2017 and 2016 compared with prior years was not significant.

Other Income and Expense - Other income increased $5.5 million in 2017 compared with 2016 primarily due to higher AFUDC due to increased capital spending andMarina as a new AIRP II program at SJG, a gain recorded on aresult of the solar assets being classified as held for sale as of real estate during the first quarter of 2017, as well as interest income earned from a favorable FERC decision over a tariff rate dispute at SJRGJune 27, 2018 (see Note 151 to the consolidated financial statements). These
Energy and Other Taxes - Energy and other taxes increased $2.5 million in 2019 compared with 2018, which was primarily due to SJI consolidating the accounts of ETG and ELK for all twelve months in 2019 compared to only the last six months of 2018.

Net Gain on Sales of Assets - During 2019, the Company recognized $3.1 million in net gains on the sale of assets related to solar project sales, with these gains pertaining to those projects that were not impaired as discussed above. During 2018, the Company recognized net gains on the sale of assets of $15.4 million, which includes gains on the sale of solar assets of $17.6 million, with these gains pertaining to those projects that were not impaired as discussed above, partially offset bywith a settlementloss incurred on the sale of the retail gas operations at Marina during the second quarterSJE of 2016 as discussed in$2.2 million. See Note 71 to the consolidated financial statements.

Other Income and Expense - The change in other income and expense in 20162019 compared with 2015the prior year was not significant.

Interest Charges - Interest charges increased $22.6$24.2 million in 20172019 compared with 20162018 primarily due to interest incurred on long-term debt that was entered into in 2018 to finance the Acquisition.

Income Taxes - Income tax expense increased $20.5 million in 2019 compared with 2018 primarily due to the following:
$11.1 million due to higher amounts of long-term debt outstanding at SJI and SJG, along with higher interest rates on variable rate debt outstanding at SJI and SJG.
$5.1 million of charges incurred on the Bridge Credit Facility entered intoincrease in conjunction with the agreement to acquire Elizabethtown Gas and Elkton Gas (see Note 1 to the consolidated financial statements).
$4.0 million of interest charges incurred from an unfavorable court ruling related to a pricing dispute between SJRG and a supplier (see Note 15 to the consolidated financial statements),
$2.4 million resulting from an amendment of an existing interest rate derivative contract previously linked to unrealized losses recorded in AOCL, which was reclassified to interest expense as a result of the prior hedged transactions being deemed probable of not occurring (see Note 16 to the consolidated financial statements).
The change in interest charges in 2016 compared with 2015 was not significant.
Income Taxes - Income taxes changed from a $54.2 million expense in 2016 to a $24.9 million benefit in 2017 primarily due to $13.5 million of adjustments made as a result of the Tax Cuts and Jobs Act, which was enacted in 2017 (see Note 4 to the consolidated financial statements), which are excluded from Economic Earnings. Also contributing was an overall lossincome before income taxes as opposed to income in 2016, primarily due to several impairment charges taken as discussed under "Impairment Charges" above (also see Note 1 to the consolidated financial statements), along with an unfavorable court ruling related to a pricing dispute between SJRG and a supplier (see Note 15 to the consolidated financial statements). These were partially offset2019 compared with the impact of recording no investment tax credits on renewable energy facilities in 2017 as opposed to $9.1 million in 2016, which is consistent with SJI's previously announced strategy of substantially reducing solar development. Income tax expense increased $52.8 million in 2016 compared with 2015 primarily due to a higher effective tax rate due to a decrease in the investment tax credits available on renewable energy facilities at Marina, along with higher income before income taxes. Investment tax credits from renewable energy facilities at Marina of $9.1 million and $38.3 million were recognized for the years ended December 31, 2016 and 2015 , respectively.prior year.


Equity in Earnings of Affiliated Companies - The change in equity in earnings of affiliated companies in 20172019 compared with 2016the prior year was not significant. Equity in earnings of affiliated companies increased $33.2 million to earnings of $5.4 million in 2016 compared with 2015 primarily due to the impact of a reduction in the carrying amount of an investment at one of Energenic's operating subsidiaries, which occurred in the second quarter of 2015, along with a settlement at Marina in the third quarter of 2016 (see Note 7 to the consolidated financial statements).
 

Discontinued Operations - The losses are primarily comprised of environmental remediation and product liability litigation associated with previously disposed of businesses.


LIQUIDITY AND CAPITAL RESOURCES:
 
For information on the changes in liquidity and capital resources from 2018 compared to 2017, refer to the Management Discussion & Analysis section in Item 7 of SJI's and SJG's Annual Report on Form 10-K for the year ended December 31, 2018.

Liquidity needs are driven by factors that include natural gas commodity prices; the impact of weather on customer bills; lags in fully collecting gas costs from customers under the BGSS charge and other regulatory clauses, and environmental remediation expenditures through the Remediation Adjustment Clause (RAC);RAC; working capital needs of SJI's energy trading and marketing activities; the timing of construction and remediation expenditures and related permanent financings; the timing of equity contributions to unconsolidated affiliates; mandated tax payment dates; both discretionary and required repayments of long-term debt; and the amounts and timing of dividend payments.
 
Cash Flows from Operating Activities - Liquidity needs are first met with net cash provided by operating activities. Net cash provided by operating activities totaled $121.1 million, $143.6 million and $190.3 million $262.6 millionin 2019, 2018 and $186.7 million in 2017, 2016 and 2015, respectively. Net cash provided by operating activities varies from year-to-year primarily due to the impact of weather on customer demand and related gas purchases, customer usage factors related to conservation efforts and the price of the natural gas commodity, inventory utilization, and gas cost recoveries. Operating activities in 20172019 produced less net cash than 2016,2018 primarily due to under-recoveries incash payments related to a legal proceeding of a pricing dispute during the BGSS clause at SJG. During the secondthird quarter of 2017, SJG provided a customer BGSS bill credit based on a forecasted over-recovered clause balance2019 (see Note 15 to the consolidated financial statements). This decrease was partially offset by higher collections from customers at the end of the BGSS year. In addition,Utilities, customer growth, and lower costs experienced at SJG experienced higher spending for environmental remediation. Finally, during the first quarter of 2017, SJI made a $10.0 million payment to fund its pension plans. SJI did not make a pension payment in 2016. SJI strives to keep its pension plans fully funded. When factors such as lesser than expected asset performance and/or declining discount rates negatively impact the funding status of the plans, SJI increases its contributions to supplant that funding shortfall.remediations.


Net cash flow from operating activities increased in 2016 compared to 2015 primarily due to improvements in working capital due to higher customer receivable collections as well as lower gas purchases as a result of the warmer weather experienced during 2016. In addition, SJI did not make a pension payment in 2016. In 2015, SJI made a $15.0 million pension contribution as a result of a decline in the discount rate and new mortality tables released at the end of 2014, both of which negatively impacted the funding status of its pension plans. The Company strives to keep its pension plans fully funded. When factors such as lesser than expected asset performance and/or declining discount rates negatively impact the funding status of the plans, the Company increases its contributions to compensate for that funding shortfall. Partially offsetting the increase was higher spending on environmental remediation at the utility and lower collections under utility regulatory clauses due to warmer weather experienced throughout 2016.

47

Cash Flows from Investing Activities - SJI has a continuing need for cash resources and capital, primarily to invest in new and replacement facilities and equipment. Net cash outflows from investing activities, which are primarily construction projects along with the impacts from the Acquisition, for 2017, 20162019, 2018 and 20152017 amounted to $477.6 million, $1.79 billion and $287.3 million, $280.3 million and $387.3 million, respectively. The higher amount of net cash outflows from investing activities for 2018 was due to cash paid for the Acquisition (see Note 20 to the consolidated financial statements). We estimate the net cash outflows for investing activities, net of refinancings and returns/advances on investments from affiliates, for 2018, 20192020, 2021 and 20202022 to be approximately $331.4$533.4 million, $389.5$801.8 million and $325.8$859.1 million, respectively.  The highhigher level of investing activities for 2018, 20192020, 2021 and 20202022 is due to a combination of the accelerated infrastructure investment programs at SJG, future capital expenditures at ETG, and a major pipeline project to support an electric generation facility, both at SJG. Also contributing to the high level of investing activities are potential SJI Midstream investments, net of potential returns,projected investment in 2018 through 2020.PennEast in 2021 and 2022. SJI expects to use short-term borrowings under lines of credit from commercial banks and thea commercial paper program to finance these investing activities as incurred. From time to time, SJI may refinance the short-term debt with long-term debt. Expected future expenditures related to the acquisition of Elizabethtown Gas and Elkton Gas are not included in the future

Other key investing activities noted aboveof SJI during 2019, 2018 and 2017 were as those costs are still being evaluated,follows:
•SJI received approximately $26.8 million and $310.6 million in 2019 and 2018, respectively, from the acquisition is still pending approvals.sale of certain solar assets along with the sale of SJE's retail gas operations (2018). See Note 1 to the consolidated financial statements.

•In 2019, SJI received $15.6 million as an adjustment to the purchase price related to the Acquisition. See Note 20 to the consolidated financial statements.
The Company•In 2019, SJI paid $4.0 million to acquire AEP. See Note 20 to the consolidated financial statements.
•In 2019, SJI received $1.7 million in insurance proceeds.
•SJI made net investments in unconsolidated affiliates of $8.3 million, $6.6 million and $32.1 million 2019, 2018 and $7.52017, respectively.
•In 2018, SJI paid $11.3 million in 2017 and 2016, respectively.to enter into a new asset management agreement. See Note 1 to the consolidated financial statements.

•During 2017, SJI received approximately $3.1 million related to the sale of real estate. SJI recognized an after-tax gain on this sale of approximately $1.7 million.

•During 2017, SJI made an incremental $7.5 million payment above the prior year to fund company-owned life insurance.

•During 2017, SJI received the remaining balance in connection with an outstanding note receivable with a third party. Cash proceeds received in 2017 were $22.9 million.




Cash Flows from Financing Activities - Short-term borrowings from the commercial paper program and lines of credit from commercial banks are used to supplement cash flows from operations, to support working capital needs and to finance capital expenditures and acquisitions as incurred. From time to time, short-term debt incurred to finance capital expenditures is refinanced with long-term debt.
 
48

Credit facilities and available liquidity as of December 31, 20172019 were as follows (in thousands):
 
Company Total Facility Usage Available Liquidity Expiration Date CompanyTotal FacilityUsageAvailable LiquidityExpiration Date
SJI:         SJI:    
Syndicated Revolving Credit Facility

 $400,000
 $251,000
(A)$149,000
 August 2022(C)
SJI Syndicated Revolving Credit Facility SJI Syndicated Revolving Credit Facility$500,000  $432,600  (A) $67,400  August 2022
Revolving Credit Facility

 50,000
 50,000
 —
 September 2019(D) Revolving Credit Facility50,000  50,000  —  September 2020
Term Loan Credit Agreement Term Loan Credit Agreement100,000  100,000  —  September 2020
 

 

 

 
 
Total SJI 450,000
 301,000
 149,000
   Total SJI650,000  582,600  67,400   
 

 

 

 
 
SJG:         SJG:          
Commercial Paper Program/Revolving Credit Facility

 200,000
 52,800
(B)147,200
 August 2022(E) Commercial Paper Program/Revolving Credit Facility200,000  172,100  (B) 27,900  August 2022
Uncommitted Bank Line 10,000
 —
 10,000
 August 2018  Uncommitted Bank Line10,000  —  10,000  September 2020


       
Total SJG 210,000
 52,800
 157,200
   Total SJG210,000  172,100  37,900   
 

 

 

 
 
ETG/ELK:ETG/ELK:
ETG/ELK Revolving Credit Facility ETG/ELK Revolving Credit Facility200,000  105,300  (C)94,700  June 2021
Total $660,000
 $353,800
 $306,200
   Total$1,060,000  $860,000  $200,000   
 
(A) Includes letters of credit outstanding in the amount of $6.6$9.5 million.

(B) Includes letters of credit outstanding in the amount of $0.8 million.

(C) Includes letters of credit outstanding in the amount of $1.0 million.
(C) In August 2017,
For SJI, entered intothe $860.0 million of usage in the table above, less the letters of credit noted in (A)-(C), equal the $848.7 million recorded as Notes Payable on the consolidated balance sheet as of December 31, 2019. For SJG, the $172.1 million of usage in the table above, less the letters of credit noted in (B), equal the $171.3 million recorded as Notes Payable on the balance sheet as of December 31, 2019.

SJI (as a five year, unsecured $400.0 millionguarantor to ELK's obligation under this revolving credit agreement which is syndicated among several banks. In connection with this agreement, SJI terminated its previous $400.0 million revolving credit agreement.

(D) In September 2017, SJI amended an unsecured revolving credit facility for two years. The facility now terminates in September 2019.

(E) In August 2017, SJG entered intoagreement), ETG and ELK (as Borrowers) have a five year, unsecured $200.0 million revolving credit agreement with several lenders. The revolving credit agreement provides for the extension of credit to the Borrowers in a total aggregate amount of $200.0 million ($190.0 million for ETG; $10.0 million for ELK, which is syndicated among several banks. In connectionwas amended during 2019 pursuant to Section 2.03(b) of the Second Amendment to Two-Year Revolving Credit Agreement and Extension Agreement), in the form of revolving loans up to a full amount of $200.0 million, swingline loans in an amount not to exceed an aggregate of $20.0 million and letters of credit in an amount not to exceed an aggregate of $50.0 million, each at the applicable interest rates specified in the revolving credit agreement. Subject to certain conditions set forth in the revolving credit agreement, ETG may increase the revolving credit facility up to a maximum aggregate amount of $50.0 million (for a total revolving facility of up to $250.0 million). This facility contains one financial covenant, limiting the ratio of indebtedness to total capitalization (as defined in the credit agreement) of each Borrower to not more than 0.70 to 1, measured at the end of each fiscal quarter. ETG and ELK were in compliance with this agreement, SJG terminated its previous $200.0 millioncovenant at December 31, 2019. In June 2019, this revolving credit agreement.agreement was amended to add SJIU as an additional Borrower and to extend the termination date from June 2020 to June 2021.


The SJGUtilities' facilities are restricted as to use and availability specifically to SJG;the respective Utilities; however, if necessary, the SJI facilities can also be used to support SJG'sthe liquidity needs.needs of the Utilities. All committed facilities contain one financial covenant limiting the ratio of indebtedness to total capitalization of the applicable borrowers (as defined in the respective credit agreements), measured on a quarterly basis. SJI and SJGthe Utilities were in compliance with these covenants as of December 31, 2017.2019. Borrowings under these credit facilities are at market rates.

SJI's weighted average interest rate on these borrowings (which includes SJG and ETG/ELK), which changes daily, was 2.46%2.67%, 1.47%3.32% and 1.13%2.46% at December 31, 2017, 20162019, 2018 and 2015,2017, respectively.  SJG's weighted average interest rate on these borrowings, which changes daily, was 1.88%1.99%, 0.97%2.96% and 0.66%1.88% at December 31, 2017, 20162019, 2018 and 2015,2017, respectively.


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SJI's average borrowings outstanding under these credit facilities (which includes SJG)SJG and ETG/ELK), not including letters of credit, during the years ended December 31, 20172019 and 20162018 were $276.7$560.2 million and $321.9$265.5 million, respectively. The maximum amounts outstanding under these credit facilities (which includes SJG)SJG and ETG/ELK), not including letters of credit, during the years ended December 31, 20172019 and 20162018 were $373.8$907.5 million and $467.7$497.0 million respectively.


SJG's average borrowings outstanding under its credit facilities, not including letters of credit, during the years ended December 31, 20172019 and 20162018 were $17.6$113.3 million and $71.5$86.0 million, respectively. The maximum amount outstanding under theseits credit facilities, not including letters of credit, during the years ended December 31, 20172019 and 20162018 were $110.1$196.5 million and $141.7$177.0 million, respectively.



Based upon the existing credit facilities and a regular dialogue with our banks, we believe there will continue to be sufficient credit available to meet our business' future liquidity needs.


The SJI and SJGthe Utilities principal credit facilities are provided by a syndicate of banksbanks. The NPA for Senior Unsecured Notes issued by SJI contains a financial covenant limiting the ratio of indebtedness to total capitalization (as defined in the respective NPA or credit agreement) to not more than 0.70 to 1, measured at the end of each fiscal quarter. For SJI, the equity units are treated as equity (as opposed to how they are classified on the consolidated balance sheet, as long-term debt) for purposes of the covenant calculation. SJI and containSJG were in compliance with this covenant as of December 31, 2019. However, one SJG bank facility still contains a financial covenant limiting the ratio of indebtedness to total capitalization (as defined in the respective credit agreements) to not more than 0.70 to 1, measured at the end of each fiscal quarter. However, as of December 31, 2017, several bank facilities for both SJI and SJG, as well as Senior Unsecured Notes issued by SJI, still contained one financial covenant limiting the ratio of indebtedness to total capitalization (as defined in the respective credit agreements)agreement) to not more than 0.65 to 1, measured at the end of each fiscal quarter. As a result, as of December 31, 2017, both SJI and SJG needed tomust ensure that the ratio of indebtedness to total capitalization (as defined in the respective credit agreements) didagreement) does not exceed 0.65 to 1. SJI and1, as measured at the end of each fiscal quarter. SJG wereis was in compliance with these covenantsthis covenant as of December 31, 2017. All of SJI's bank facilities and Senior Unsecured Notes were amended to the new ratio in January 2018.2019.



SJG has a commercial paper program under which SJG may issue short-term, unsecured promissory notes to qualified investors up to a maximum aggregate amount outstanding at any time of $200.0 million.  The notes have fixed maturities which vary by note, but may not exceed 270 days from the date of issue. Proceeds from the notes are used for general corporate purposes.  SJG uses the commercial paper program in tandem with the newits $200.0 million revolving credit facility and does not expect the principal amount of borrowings outstanding under the commercial paper program and the credit facility at any time to exceed an aggregate of $200.0 million.


SJI supplements its operating cash flow, commercial paper program and credit lines with both debt and equity capital. Over the years, SJG has used long-term debt, primarily in the form of First Mortgage Bonds and Medium Term Notes (MTN's),MTN's, secured by the same pool of utility assets, to finance its long-term borrowing needs. These needs are primarily capital expenditures for property, plant and equipment.


In January 2017, SJG entered into a Supplemental Indenture AmendingOther Financing Activity - 2019

Proceeds from the Sale of Common Stock

SJI settled its equity forward sale agreement (see Note 6 to the consolidated financial statements) by delivering 6,779,661 shares of common stock and Restating First Mortgage Indenture (the “New Mortgage”), which amended and restated in its entirety that Indenturereceiving net cash proceeds of Mortgage dated October 1, 1947.approximately $189.0 million. The New Mortgage provides for the issuanceforward price used to determine cash proceeds received by SJG of bonds, notes or other securities that are secured by a lien on substantially all of the operating properties and franchises of SJG.

SJG had a $200.0 million multiple-draw term facility offered by a syndicate of banks. This facility bore interestSJI at a floating ratesettlement was calculated based on LIBOR plus a spread determined by SJG's credit ratings. The total outstanding amount under this facilitythe initial forward sale price, as of December 31, 2016 was $200.0 million, which was classifiedadjusted for underwriting fees, interest rate adjustments as specified in current portion of long-term debtthe equity forward agreement and any dividends paid on our common stock during the consolidated balance sheets as of December 31, 2016 as it was due in June 2017. In January 2017, SJG issuedforward period.

Debt Issuances:

SJI offered and sold $200.0 million aggregate principal amount of MTN's, Series E, 2017,the Company's 5.625% Junior Subordinated Notes due January 2047, with principal repayments beginning in 2025.2079. The MTN's bear interest at an annual ratetotal net cash proceeds, inclusive of 3.0% payable semiannually. Proceedsa debt discount of $5.3 million, were used to pay down the above-mentioned $200.0 million multiple-draw term facility which was set to expire in June 2017.$194.7 million.


In January 2017, SJGETG entered into an unsecured, $200.0a Bond Purchase Agreement and issued First Mortgage Bonds, Series 2019A-1 through Series 2019A-4, in the aggregate principal amount of $145.0 million. See Note 14 to the consolidated financial statements.

As of December 31, 2019, SJG borrowed $400.0 million multiple-drawon its term loan credit agreement ("Credit Agreement"(the “Credit Agreement”), which is syndicated among seven banks. Term loans underincluding borrowing the Credit Agreement bear interest at a variable base rate or a variable LIBOR rate, at SJG's election.remaining $90.0 million (which was available as of December 31, 2018) in 2019. Under the Credit Agreement, SJG canthe Company had the ability to borrow up to an aggregate of $200.0$400.0 million from time to time until July 2018, of which SJG borrowed $200.0 million during 2017.October 26, 2019. All loans under the Credit Agreement become due in January 2019.and payable on April 26, 2020.


In May 2017, Marina voluntarily redeemed bonds issued by the New Jersey Economic Development Authority (NJEDA) in an aggregate principal amount of $61.4 million, as follows:  Thermal Energy Facilities Revenue Bonds (Marina Energy LLC - 2001 Project) Series A ($20.0 million); Thermal Energy Facilities Federally Taxable Revenue Bonds (Marina Energy LLC - 2001 Project) Series B ($25.0 million); and Thermal Energy Facilities Revenue Bonds (Marina Energy LLC Project) Series 2006A ($16.4 million).  In connection with the redemptions, separate related letter of credit reimbursement agreements were terminated (see Note 15 to the consolidated financial statements).
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Debt Repayments:
In June 2017,
SJI redeemed at maturity $16.0 million of 2.71% Senior Unsecured Notes.

In July 2017, SJG redeemed at maturity $15.0 million of 4.657% MTNs.

In August 2017, SJI entered into a note purchase agreement that provides for the issuance of an aggregate of $100.0 million of MTNs. Pursuant to the agreement, SJI issued $50.0repaid $475.0 million aggregate principal amount of MTNs, consisting of (a) $25.0 million aggregate principal amount of 3.22%outstanding on its Floating Rate Senior Notes, Series 2017A-1, due August 2024, and (b) $25.02018D.

SJI paid off the following: $60.0 million aggregate principal amount of 3.46%outstanding on its 3.30% Senior Notes, Series 2017B-1, due August 2027. The agreement also provided for the issuance of (a) $25.02014A-1; $40.0 million aggregate principal amount of 3.32%outstanding on its Floating Rate Senior Notes, Series 2017A-2, due January 2025 and (b) $25.0

2014B-1; $30.0 million aggregate principal amount of 3.56%outstanding on its 3.30% Senior Notes, Series 2017B-2, due January 2028, that SJI issued in January 2018 (see Note 19 to the consolidated financial statements).

In October 2017, SJI entered into a 364-day, $2.6 billion syndicated, committed Bridge Facility to finance the acquisition of the assets of Elizabethtown Gas and Elkton Gas (see Note 1 to the consolidated financial statements). In November 2017 and January 2018, as a result of amendments to various outstanding debt agreements, SJI reduced the bridge commitments to $1.7 billion, or the amount of the purchase price for the assets SJI agreed to acquire. SJI incurred $10.4 million of debt issuance costs, which, net of $2.6 million of amortization, are recorded as a reduction to long-term debt on the consolidated balance sheets. The Bridge Facility is also subject to ticking fees every 90 days, and as a result SJI has paid $2.5 million of ticking fees through December 31, 2017.

In January 2018, SJI verbally agreed to issue an aggregate $250.02014A-2; $50.0 million principal amount ofoutstanding on its 3.30% Senior Unsecured Notes, via a delayed draw private placement. The first tranche of $90.0Series 2014A-3; and $60.0 million will close and fund by April 2018, at an interest rate of 3.18% and will mature in April 2021. The second tranche and third tranches, totaling $160.0 million, will close and fund prior to the acquisition date but no later than July 2018. The second tranche is for $80.0 million, matures in 2028, and the coupon rate will be 3.78% plus a 2 basis point premium per month after April 2018 until funding. The third tranche is for $80.0 million, matures in 2030, and the coupon rate will be 3.88% plus a 2 basis point premium per month after April 2018 until funding. For the second and third tranches, the coupon rates will be fixed upon closing.principal amount outstanding on its Floating Rate Senior Notes, Series 2014B-2.


In January 2016, the Company paid $12.7 million to retire outstanding debt of ACB.

In July 2016, SJG retired $15.0 million of 4.66% MTN's at maturity.

In August 2016, SJG retired $10.0 million of 5.437%5.587% MTN's.

SJG paid $8.0 million in November 2019 that was due on its 4.01% MTN's, at maturity.

In August 2016, the Company paid an aggregate $8.3 million to retire outstanding long-term debt for ACLE, SCLE and SXLE.


SJG makes payments of $0.9 million annually through December 2025 toward the principal amount of 3.63% MTN's, including a payment made in 2017. As such, $0.9 million2019.


Other Financing Activity -2018:

Proceeds from the Issuance of Equity:

In the total outstanding amount on this debt is classified in current portionsecond quarter of long-term debt on the consolidated balance sheets as it is due within one year (see Note 14 to the consolidated financial statements).

No other long-term debt was issued or retired during the years ended December 31, 2017 or 2016. In May 2016, the Company issued and sold 8,050,0002018, SJI offered 12,669,491 shares of its common stock, par value $1.25 per share, at a public offering raisingprice of $29.50 per share. Of the offered shares, 5,889,830 shares were issued at closing. On January 15, 2019, SJI settled its equity forward sale agreement by physically delivering the remaining 6,779,661 shares of common stock and receiving net cash proceeds of approximately $203.6$189.0 million. The forward price used to determine cash proceeds received by SJI at settlement was calculated based on the initial forward sale price, as adjusted for underwriting fees, interest rate adjustments as specified in the equity forward agreement and any dividends paid on our common stock during the forward period.

In the second quarter of 2018, SJI issued and sold 5,750,000 Equity Units, initially in the form of Corporate Units, which included 750,000 Corporate Units pursuant to the underwriters’ option. Each Corporate Unit has a stated amount of $50 and is comprised of (a) a purchase contract obligating the holder to purchase from the Company, and for the Company to sell to the holder for a price in cash of $50, on the purchase contract settlement date, or April 15, 2021, subject to earlier termination or settlement, a certain number of shares of common stock; and (b) a 1/20, or 5%, undivided beneficial ownership interest in $1,000 principal amount of SJI’s 2018 Series A 3.70% Remarketable Junior Subordinated Notes due 2031. SJI will pay the holder quarterly contract adjustment payments at a rate of 3.55% per year on the stated amount of $50 per Equity Unit, in respect of each purchase contract, subject to the Company's right to defer these payments. The net proceeds, after amortization of the underwriting discounts, are recorded as Long-Term Debt on the consolidated balance sheets.

Debt Issuances and Repayments:

In 2018, SJI issued the following MTN's: (a) $25.0 million aggregate principal amount of 3.32% Senior Notes, Series 2017A-2, due January 2025 and (b) $25.0 million aggregate principal amount of 3.56% Senior Notes, Series 2017B-2, due January 2028.

In 2018, SJI issued senior unsecured notes as follows: (a) $90.0 million aggregate principal amount of 3.18% Senior Notes, Series 2018A, due April 2021; (b) $80.0 million aggregate principal amount of 3.82% Senior Notes, Series 2018B, due 2028; and (c) $80.0 million aggregate principal amount of 3.92% Senior Notes, Series 2018C, due 2030.
In 2018, the Company issued an aggregate of $475.0 million of Floating Rate Senior Notes, Series 2018D, due 2019 on the one-year anniversary of the date of initial issuance. These notes were repaid during 2019.

In 2018, S&P downgraded SJI and SJG, from this offeringBBB+ with a negative outlook to BBB with a stable outlook. S&P had revised the outlook for both SJI and SJG from stable to negative after the announcement of the Acquisition in October 2017. Certain of SJI's and SJG's credit agreements are ratings-based so a downgrade could adversely impact the cost of future borrowings. The Company does not believe that the downgrade will negatively impact our ability to refinance any of our debt.

In 2018, SJG entered into an unsecured, $400.0 million term loan credit agreement (the “Credit Agreement”), under which SJG can borrow up to an aggregate of $400.0 million until October 2019. All loans under the Credit Agreement become due and payable in April 2020. Any amounts repaid prior to the maturity date cannot be reborrowed.

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In 2018, ETG issued $530.0 million aggregate principal amount of its First Mortgage Bonds, Series 2018A, which were or will beissued in five Tranches (see Note 14 to the consolidated financial statements). The proceeds from the sale of these bonds were used for capital expenditures, primarily for regulated businesses, including infrastructure investments at its utility business.

to repay short-term indebtedness under a previous $530.0 million, 364-day term loan credit agreement dated as of June 26, 2018, which was entered into to help fund the Acquisition. Prior to May 1, 2016,repayment, the term loans bore interest at a variable base rate or a variable LIBOR at the election of the Company.

In 2018, SJG redeemed $8.0 million of 4.01% MTNs.

CURRENT PORTION OF LONG-TERM DEBT & SHORT-TERM BORROWINGS - The Company has $467.9 million of long-term debt that is due within one year, along with $848.7 million of notes payable which includes borrowings under the commercial paper program (see Note 13 to the consolidated financial statements). SJI raised equity capital throughexpects to reduce its Dividend Reinvestment Plan (DRP). Sharesdebt and notes payable over the next twelve months using cash provided from the sale of MTF/ACB and ELK as discussed above, along with the sale of the remaining solar assets. The remaining portion of long-term debt that is due within one year is expected to be paid by utilizing funds provided from refinancing activity and from the Company's revolving credit facilities.


DRP - SJI offers a DRP which allows participating shareholders to purchase shares of SJI common stock offered by the DRP had been issued directly byautomatic reinvestment of dividends or optional purchases. SJI from its authorized but unissued shares of common stock. SJI raised $10.8 million of equity capital through the DRP in 2016. Effective May 1, 2016, SJI switched to purchasingcurrently purchases shares on the open market to fund share purchases by DRP participants, and as a result SJI did not raise any equity capital through the DRP in 2019, 2018 or 2017. SJI does not intend to issue equity capital via the DRP in 2018.2020.
 
CAPITAL STRUCTURE - SJI's capital structure was as follows:
 
 As of December 31,
 20192018
Equity29.6 %28.9 %
Long-Term Debt52.8 %64.9 %
Short-Term Debt17.6 %6.2 %
Total100.0 %100.0 %
 As of December 31,
 2017 2016
Equity43.7% 49.1%
Long-Term Debt43.6% 39.6%
Short-Term Debt12.7% 11.3%
Total100.0% 100.0%



ForDuring 2019, 2018 and 2017, 2016 and 2015, SJI paid quarterly dividends to its common shareholders. SJI has paid dividends on its common stock for 6668 consecutive years and has increased that dividend each year for the last 1821 years. The Company currently seeksSJI’s current long-term goals are to grow thatthe dividend at a rate consistent with earnings growth while targetingover the long term, subject to the approval of its Board of Directors, with a targeted payout ratio of between 55% and 70%65% of Economic Earnings. In setting the dividend rate, the Board of Directors of SJI considers future earnings expectations, payout ratio, and dividend yield relative to those at peer companies, as well as returns available on other income-oriented investments.  However, there can be no assurance that SJI will be able to continue to increase the dividend, meet the targeted payout ratio or pay a dividend at all in the future.


COMMITMENTS AND CONTINGENCIES:


ENVIRONMENTAL REMEDIATION - Costs for remediation projects, net of recoveries from ratepayers, for 2017, 20162019, 2018 and 20152017 amounted to net cash outflows of $49.2 million, $59.3 million and $39.9 million, $39.7 million and $22.1 million, respectively. TotalThese include environmental remediation liabilities of ETG associated with six former manufactured gas plant sites in New Jersey which are recoverable from customers through rate mechanisms approved by the BPU. See the Contractual Cash Obligations Table below for the total expected net cash outflows for remediation projects are expected to be approximately $57.5 million, $48.4 million and $12.6 million for 2018, 2019 and 2020, respectively.future years.  As discussed in Notes 10, 11 and 15 to the consolidated financial statements, certain environmental costs are subject to recovery from ratepayers.

STANDBY LETTERS OF CREDIT — As of December 31, 2017, SJI provided $6.6 million of standby letters of credit through its revolving credit facility to enable SJE to market retail electricity and for various construction and operating activities. SJG provided a $0.8 million letter of credit under its revolving credit facility to support the remediation of environmental conditions at certain locations in SJG's service territory. SJG has provided $25.1 million of additional letters of credit under a separate facility outside of the revolving credit facility to support variable-rate demand bonds issued through the NJEDA to finance the expansion of SJG’s natural gas distribution system. In May 2017, Marina redeemed its variable-rate demand bonds, and the related letters of credit reimbursement agreements, which totaled $62.3 million, were terminated (seeSee Note 1415 to the consolidated financial statements).statements.


CONTRACTUAL OBLIGATIONS - SJG and SJRG have certain commitments for both pipeline capacity and gas supply for which they pay fees regardless of usage. Those commitments as of December 31, 2017,2019, average $87.7$102.1 million annually and total $875.9$914.8 million over the contracts' lives. Approximately 33%34% of the financial commitments under these contracts expire during the next five years. These contracts are included in SJI's contractual obligations below. We expect to renew each of these contracts under renewal provisions as provided in each contract. SJG recovers all prudently incurred fees through rates via the BGSS clause.

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Table of Contents
In addition, in the normal course of business, SJG and SJRG have entered into long-term contracts for natural gas supplies.  SJRG has committed to purchase a minimum of 604,000 dts/d and up to 954,000772,500 dts/d of natural gas, from various suppliers, for terms ranging from threefour to ten years at index-based prices.  SJG has committed to purchase a minimum of 6,250 dts/d and up to 25,000 dts/d of natural gas, from one supplier, for a term of eight years at index-based prices. SJG has also committed to a purchase of a minimum of 55,00015,000 dts/d and up to 70,000 dts/d, from a supplier for a term of ten years at index-based prices. Also, in 2019 SJG entered into a two-year purchase agreement with a producer delivering 5,000 dts/day at SJG’s Leidy Line for certified responsible gas from November 1, 2019 through October 31, 2021. The obligations for these purchases have not been included in SJI'sthe contractual obligations discussedtable below because the actual volumes and prices are not fixed.


The following table summarizes our contractual cash obligations and their applicable payment due dates as of December 31, 20172019 (in thousands):
 Up toYearsMore than  Up toYearsMore than
Contractual Cash ObligationsTotal1 Year2 & 34 & 55 YearsContractual Cash ObligationsTotal1 Year2 & 34 & 55 Years
  
Principal Payments on Long-Term Debt$1,204,173
$63,809
$526,818
$93,993
$519,553
Principal Payments on Long-Term Debt$2,568,855  $467,909  $471,493  $105,168  $1,524,285  
Interest on Long-Term Debt283,418
38,694
55,763
45,359
143,602
Interest on Long-Term Debt1,704,661  99,347  165,514  152,252  1,287,548  
Construction Obligations118,162
118,162
—
—
—
Construction Obligations267,522  267,522  —  —  —  
Operating Leases1,472
745
624
103
—
Operating Leases1,926  1,209  566  46  105  
Commodity Supply Purchase Obligations1,622,553
650,658
406,692
119,669
445,534
Commodity Supply Purchase Obligations1,756,172  576,117  445,865  207,764  526,426  
Environmental Remediation Costs172,855
66,372
61,022
1,537
43,924
Environmental Remediation Costs232,885  43,849  84,838  76,896  27,302  
New Jersey Clean Energy Program13,154
13,154
—
—
—
New Jersey Clean Energy Program21,440  21,440  —  —  —  
Other Purchase Obligations2,437
2,437
—
—
—
Other Purchase Obligations1,875  1,875  —  —  —  
Total Contractual Cash Obligations$3,418,224
$954,031
$1,050,919
$260,661
$1,152,613
Total Contractual Cash Obligations$6,555,336  $1,479,268  $1,168,276  $542,126  $3,365,666  
 
Long-Term Debt in the table above does not include unamortized debt issuance costs of $17.4$25.5 million and unamortized debt discounts of $5.3 million, which are reclassifiedrecorded as an offset to Long-Term Debt on the consolidated balance sheets.


Interest on long-term debt in the table above includes the related interest obligations through maturity on all outstanding long-term debt.  Expected asset retirement obligations and the liability for unrecognized tax benefits are not included in the table above as the total obligation cannot be calculated due to the subjective nature of these costs and timing of anticipated payments. SJI contributed $10.0 million to the pension plans, of which SJG contributed $8.0 million, in January 2017. SJI did not make contributions to its employee pension plans in 2016.2019. Future pension contributions cannot be determined at this time. SJG's regulatory obligation to contribute $3.6 million annually to its postretirement benefit plans’ trusts, as discussed in Note 12 to the consolidated financial statements, is also not included as its duration is indefinite.


RC Cape May Holdings, LLC has communicated to SJG that it no longer intends to proceed with a project to re-power the former BL England facility with natural gas. The total potential consideration relatedproposed project was approved by the BPU in 2015 and the New Jersey Pinelands Commission in 2017, and would have supplied natural gas to this facility as well as provided a secondary supply of natural gas to customers in Atlantic and Cape May counties. SJG remains committed to meeting the agreements to acquire the assetsvitally important needs of Elizabethtown Gasresidents and Elkton Gas, along with expected future costs to complete the acquisition, are not includedbusinesses in the table above due to pending approvals as discussed earlier in Management's Discussion. Also see Note 1 to the consolidated financial statements.these counties, and SJG is exploring other alternatives.


Off-Balance Sheet ArrangementsOFF-BALANCE SHEET ARRANGEMENTS - An off-balance sheet arrangement is any contractual arrangement involving an unconsolidated entity under which the Company has either made guarantees or has certain other interests or obligations.


As of December 31, 2017,2019, SJI had issued $6.0$11.3 million of parental guarantees on behalf of EnergyMark, an unconsolidated subsidiary. These guarantees generally expire within the next two years and were issued to enable the subsidiary to market retail natural gas.


During 2011, subsidiaries of Energenic, in which Marina has a 50% equity interest,In April 2018, SJI entered into 20-year contractsvarious agreements relating to build, ownpublic offerings. See "Liquidity and operate a central energy center and energy distribution system for a new hotel, casino and entertainment complex in Atlantic City, New Jersey. The complex commenced operations in April 2012, and as a result, Energenic subsidiaries began providing full energy services to the complex.Capital Resources."


In June 2014, the parent company of the hotel, casino and entertainment complex filed petitions in U. S. Bankruptcy Court to facilitate a sale of substantially all of its assets. The complex ceased normal business operations in September 2014. Energenic subsidiaries continued to provide limited energy services to the complex during the shutdown period under a temporary agreement with the trustee. The hotel, casino and entertainment complex was sold in April 2015.NOTES RECEIVABLE-AFFILIATES - As of December 31, 2015,2019 and 2018, the Energenic subsidiaries were providing limited services to the complex under a short-term agreement with the new owner. However, the Energenic subsidiaries had not been able to secure a permanent or long-term energy services agreement with the new owner.

In 2015, managementoutstanding balance of the Company and Energenic evaluated the carrying value of the investment in this project and a related note receivable. Based on the inability of the Energenic subsidiaries to secure a permanent or long-term energy services agreement, the Company recorded a $7.7 million (net of tax) non-cash charge to earnings during the second quarter of 2015 due to the reduction in the carrying value of the investment in this project recorded by Energenic. This charge is included in Equity in Loss of Affiliated Companies for the year ended December 31, 2015 on the statements of consolidated income.

The central energy center and energy distribution system owned by the Energenic subsidiaries was financed in part by the issuance of bonds during 2011. These bonds were collateralized primarily by certain assets of the central energy center and revenue from the energy services agreement with the hotel, casino and entertainment complex. During 2015, due to the cessation of normal business operations of the complex and the inability of the Energenic subsidiaries to meet its obligations under the bonds, the trustee for the bondholders filed suit to foreclose on certain assets of the central energy center. In November 2015 during settlement discussions, the bondholders alleged, among other things, that they were entitled to recover from Energenic itself, any amounts owed under the bonds that were not covered by the collateral, including principal, interest and attorney’s fees. The bondholders’ assertion was based on inconsistent language in the bond documents. In January 2016, Energenic and certain subsidiaries reached a multi-party settlement with the bondholders. This agreement resolves all outstanding litigation and transfers ownership of the bondholders’ collateral to the owners of the entertainment complex. The Company's share of this settlement was $7.5 million, which was accrued by Energenic as of December 31, 2015 and paid in 2016. The Company entered into agreements with its insurance carrier and external legal advisors to recover, net of legal costs, approximately $7.0 million of costs associated with the bondholder settlement discussed above. The Company received $2.1 million in the second quarter of 2016, which is included in Other Income on the statements of consolidated income for the year ended December 31, 2016, and $5.3 million was received in the third quarter of 2016 and is included in Equity in Earnings of Affiliated Companies on the statements of consolidated income for the year ended December 31, 2016, as the loss recorded in the prior year was included in this line item on the statements of consolidated income for the year ended December 31, 2015.


As of December 31, 2017, SJI had approximately $13.6 million included in Notes Receivable - Affiliate on the consolidated balance sheets, due from– Affiliates was $18.1 million and $15.2 million, respectively. These Notes Receivable-Affiliates are comprised of:

•$13.1 million and $13.6 million, respectively, of notes related to Energenic, which isare secured by itsEnergenic's cogeneration assets for energy service projects. Thisprojects, accrue interest at 7.5% and are to be repaid through 2025. As of December 31, 2019 and 2018, $4.4 million and $3.4 million, respectively, of interest has been accrued and is recorded in Accounts Receivable on the consolidated balance sheets. No payments have been made on this note is subject to a reimbursement agreement that secures reimbursement for SJI, from its joint venture partner,as of a proportionate shareDecember 31, 2019.
53

•The remaining $5.0 million and $1.6 million, respectively, of any amounts thatnotes are not repaid.

unsecured and accrue interest at variable rates.
Management will continue to monitor the situation surrounding the cogeneration assets and will evaluate the carrying value of the investment and the note receivable as future events occur.

PENDING LITIGATION - SJI and SJG are subject to claims, actions and other legal proceedings arising in the ordinary course of businessbusiness. Neither SJI nor SJG can make any assurance as to the outcome of any of these actions but, based on an analysis of these claims and other legal proceedings. SJI has been named in, among other actions, certain gas supply and capacity management contract disputes and certain product liability claims related to our former sand mining subsidiary.

SJI is currently involved in a pricing dispute related to 2 long-term gas supply contracts. On May 8, 2017, a jury from the United States District Court for the District of Colorado returned a verdict in favor of the plaintiff supplier. On July 21, 2017, the court entered final judgment against SJG and SJRG. As a result of this ruling, SJG and SJRG have accrued $20.4 million and $53.6 million, respectively, through December 31, 2017. Weconsultation with outside counsel, we do not believe that the amountany of these claims, other than those described in Note 15 to be paid by SJG reflects a gas cost that ultimately will be recovered from SJG’s customers through adjusted rates. As such, this amount was recorded as both an Accounts Payable and a reduction of Regulatory Liabilities on the consolidated balance sheets of both SJI and SJG as of December 31, 2017. The amount associated with SJRG was also recorded as an Accounts Payable on the consolidated balance sheets of SJI as of December 31, 2017, with charges of $49.6 millionfinancial statements, are reasonably likely to Cost of Sales - Nonutility on the consolidated statements of income of SJI for the year ended December 31, 2017. SJI also recorded $4.0 million to Interest Charges on the consolidated statements of income for the year ended December 31, 2017. The plaintiff supplier filed a second related lawsuit against SJG and SJRG in the United States District Court for the District of Colorado on December 21, 2017, alleging that SJG and SJRG have continued to breach the gas supply contracts notwithstanding the judgmentin the prior lawsuit.  The plaintiff supplier is seeking recovery of the amounts disputed by SJI since the earlier judgment, and a declaration regarding the price under the disputed contracts going forward until the contracts terminate in October 2019.  SJI moved to stay the second lawsuit pending resolution of the post-judgment motions in the first lawsuit and any appeal of that lawsuit.  All legal reserves related to this second lawsuit are recorded as part of the accrued amounts disclosed above.

SJI was involved in a dispute in the Court of Common Pleas of Philadelphia related to a three-year capacity management contract with a counterparty. The counterparty claimed that it was owed approximately $13.3 million, plus interest, from SJRG under a sharing credit within the contract. SJI settled with the counterparty for $9.5 million, which amount was recorded to Cost of Sales - Nonutility on SJI's consolidated statements of income for the year ended December 31, 2017. SJI made the payment in September 2017.

SJI was also involved in a tariff rate dispute with a counterparty, whereby SJI contended that the counterparty was overcharging for storage demand charges over a ten-year period. In November 2017, SJI received a favorable decision from the FERC on this matter, which resulted in a total pre-tax income impact of $9.3 million. Of this amount, $7.4 million related to the actual overcharges and was recorded as a decrease to Cost of Sales - Nonutility on the consolidated statements of income for the year ended December 31, 2017. The remaining $1.9 million related to interest income and was recorded in Other Income on the consolidated statements of income for the year ended December 31, 2017. SJI received payment from the counterparty in November 2017.

Liabilities related to claims are accrued when the amount or range of amounts of probable settlement costs or other charges for these claims can be reasonably estimated. For matters other than the disputes that are noted above, SJI has accrued approximately $3.0 million and $3.1 million related to all claims in the aggregate as of December 31, 2017 and 2016, respectively, of which SJG has accrued approximately $0.7 million and $0.6 million as of December 31, 2017 and 2016, respectively. Although SJI and SJG do not presently believe that these matters will have a material adverse effectimpact on itsthe business givenor financial statements of SJI or SJG. See Note 15 to the inherent uncertainties in such situations, SJI and SJG can provide no assurance regarding the outcome of litigation.consolidated financial statements for more detail on these claims.



SOUTH JERSEY GAS COMPANY


This section of Management’s Discussion focuses on South Jersey Gas Company (SJG)SJG for the reported periods. In many cases, explanations and disclosures for both SJI and SJG are substantially the same or specific disclosures for SJG are included in the Management's Discussion for SJI.


RESULTS OF OPERATIONS:


For information on the changes in SJG's results of operations from 2018 compared to 2017, refer to the Management Discussion & Analysis section in Item 7 of SJI's and SJG's Annual Report on Form 10-K for the year ended December 31, 2018.

The results of operations for the gasSJG utility operations at SJGoperation are described in detail above; therefore, this section primarily focuses on statistical information and other information that is not discussed in the results of operations under South Jersey Industries, Inc. Refer to the section entitled “Results of Operations - GasSJG Utility Operations” for a detailed discussion of the results of operations for SJG.



54

The following table summarizes the composition of selected gas utility throughput for the years ended December 31, (in thousands, except for degree day data):


December 31, 2019December 31, 2018December 31, 2017
December 31, 2017 December 31, 2016 December 31, 2015
Utility Throughput - dth:           
Utility Throughput - dts:Utility Throughput - dts:        
Firm Sales -           Firm Sales -        
Residential22,107
 15% 22,126
 15% 23,852
 17%Residential24,856  15 %25,424  16 %22,107  15 %
Commercial5,294
 3% 4,956
 3% 5,980
 4%Commercial6,485  4 %6,037  4 %5,294  3 %
Industrial422
 —
 310
 —
 338
 —
Industrial373  —  434  —  422  —  
Cogeneration and Electric Generation1,300
 1% 1,485
 1% 1,449
 1%Cogeneration and Electric Generation952  1 %2,384  1 %1,300  1 %
Firm Transportation -           Firm Transportation -
Residential1,635
 1% 1,975
 1% 2,427
 2%Residential1,174  1 %1,504  1 %1,635  1 %
Commercial6,422
 4% 6,892
 5% 6,783
 5%Commercial6,284  4 %6,978  4 %6,422  4 %
Industrial10,894
 7% 11,612
 8% 11,780
 9%Industrial9,803  6 %10,278  6 %10,894  7 %
Cogeneration and Electric Generation6,199
 4% 7,451
 5% 5,870
 4%Cogeneration and Electric Generation5,682  3 %5,113  3 %6,199  4 %
Total Firm Throughput54,273
 35% 56,807
 38% 58,479
 42%Total Firm Throughput55,609  34 %58,152  35 %54,273  35 %
           
Interruptible Sales3
 —
 2
 —
 20
 —
Interruptible Sales6  —  28  —  3  —  
Interruptible Transportation1,140
 1% 1,149
 1% 1,338
 1%Interruptible Transportation1,062  1 %1,039  1 %1,140  1 %
Off-System25,560
 17% 16,526
 11% 14,603
 11%Off-System14,731  9 %13,582  9 %25,560  17 %
Capacity Release70,315
 47% 73,913
 50% 62,349
 46%Capacity Release91,520  56 %86,249  55 %70,315  47 %
           
Total Throughput - Utility151,291
 100% 148,397
 100% 136,789
 100%Total Throughput - Utility162,928  100 %159,050  100 %151,291  100 %
           
Number of Customers at Year End:           Number of Customers at Year End:
Residential358,026
 93% 352,427
 93% 348,093
 93%Residential370,693  93 %365,009  93 %358,026  93 %
Commercial25,184
 7% 24,767
 7% 24,565
 7%Commercial25,985  7 %25,657  7 %25,184  7 %
Industrial423
 —
 431
 —
 442
 —
Industrial412  —  426  —  423  —  
           
Total Customers383,633
 100% 377,625
 100% 373,100
 100%Total Customers397,090  100 %391,092  100 %383,633  100 %
           
Annual Degree Days*4,272
   4,292
   4,402
  
Annual Degree Days*4,482     4,602  4,272     
*Each day, each degree of average daily temperature below 65 degrees Fahrenheit is counted as one heating degree-day. Annual degree-days is the sum of the daily totals.



55

Throughput - Gas Utility Operations 20172019 vs. 20162018 -Total gas throughput increased 2.93.9 MMdts, or 2.0%2.4%, in 20172019 compared with 2016 primarily due to increases in Off-System Sales of 9.0 MMdth. The increase in Off-System volume is primarily relatedto additional Off-System contracts that were entered into April through October of 2017.  The increase in Off-System volume was partially offset by a 3.6 MMdts decrease in capacity releases during 2017 compared to 2016. Additionally, third-party supplier deliveries also decreased by 2.8 MMdth during 2017 compared to 2016, primarily due to weather that was 0.4% warmer than the previous year.

Throughput - Gas Utility Operations 2016 vs. 2015 - Total gas throughput increased 11.6 MMdts, or 8.5%, from 2015 to 2016,2018, primarily due to increases in capacity release. Therelease, which was due to warmer than normal weather which created less demand from SJG's rate payers and left more open capacity available for OSS and releases. In addition to the lower demand, the increase in capacity release volume is primarily related tothe result of specific segmented releases made of Columbia pipeline capacity that did not occur in 2015. An increase in third-party supplier deliveries on the ColumbiaTransco pipeline to SJG’s system freed up capacity at SJG and allowed for additional capacity release of 11.6 MMdts during 2016which were lower in 2018 compared to 2015. Off-System Sales (OSS) volume also increased 1.9 MMdts, or 13.2%, during 2016 compared to 2015, primarily due to increased opportunity to supply natural gas to gas-fired power generation facilities during the summer months of 2016. These increases were partially offset by a 1.7 MMdts, or 2.9%, decrease in firm throughput, primarily due to weather that was 3% warmer than the previous year.2019.


Operating Revenues & Utility Margin - See SJI's Management Discussion section above.


Operating Expenses - A summary of changes in other operating expenses (in thousands):


 2019 vs. 20182018 vs. 2017
Operations(4,282) $3,383  
Maintenance2,157  $2,178  
Depreciation6,210  $6,455  
Energy and Other Taxes640  $109  
 2017 vs. 20162016 vs. 2015
Operations3,383
$(12,227)
Maintenance2,178
$1,366
Depreciation6,455
$6,067
Energy and Other Taxes109
$(411)


Operations - See SJI's Management Discussion section above.


Maintenance- See SJI's Management Discussion section above.


Depreciation - Depreciation expense increased $6.2 million and $6.5 million in 2019 and $6.1 million in 2017 and 2016,2018, respectively, compared with the prior year primarily due to continuing investment in utility plant.  The increased spending in recent years is a direct result of New Jersey's infrastructure improvement efforts, which included the approval of SJG’s AIRP and SHARP, in addition to significant investment in new technology systems.


Energy and Other Taxes - The change in energy and other taxes in 20172019 and 20162018 compared with prior years was not significant.


Other Income and Expense - Other Income and Expense increased $2.6 million in 2017 compared with 2016, primarily due to higher AFUDC due to increased capital spending and a new AIRP II program. ChangesThe changes in Other Income and Expense during 2016in 2019 and 2018 compared with 2015 wereprior years was not significant.


Interest Charges– Interest charges increased $6.8$3.6 million and $3.3 million in 20172019 compared with 2016,2018, primarily due to higher amounts of long-term debt outstanding (see Note 14 to the consolidated financial statements). Interest charges decreased $2.0 million in 2016 compared with 2015 primarily due to higher capitalization of interest costs on construction during 2016. This was a result of accumulating capital investments under the AIRP. AIRP investments are approved by the BPU to accrue interest on construction until such time they are rolled into base rates. This is partially offset by interest on $61.0 million of long-term debt issued in January 2016.


Income Taxes– Income tax expense generally fluctuates as income before taxes changes. Minor variations will occur period to period as a result of effective tax rate adjustments. Changes for the year ended December 31, 2018 were also impacted by Tax Reform.


LIQUIDITY AND CAPITAL RESOURCES:


For information on the changes in SJG's liquidity and capital resources from 2018 compared to 2017, refer to the Management Discussion & Analysis section in Item 7 of SJI's and SJG's Annual Report on Form 10-K for the year ended December 31, 2018.

Liquidity and capital resources for SJG are substantially covered in the Management’s Discussion of SJI (except for the items and transactions that relate to SJI and its nonutility subsidiaries). Those explanations are incorporated by reference into this discussion.


56

Liquidity needs for SJG are driven by factors that include natural gas commodity prices; the impact of weather on customer bills; lags in fully collecting gas costs from customers under the BGSS charge and environmental remediation expenditures through the RAC; the timing of construction and remediation expenditures and related permanent financings; mandated tax payment dates; both discretionary and required repayments of long-term debt; and the amounts and timing of dividend payments.


Cash Flows from Operating Activities - Liquidity needs are first met with net cash provided by operating activities. Net cash provided by operating activities totaled $106.7$131.7 million, $142.2$113.0 million and $164.6$106.7 million for the years ended 2017, 20162019, 2018 and 2015,2017, respectively. Net cash provided by operating activities varies from year-to-year primarily due to the impact of weather on customer demand and related gas purchases, customer usage factors related to conversion efforts and the price of the natural gas commodity, inventory utilization, and gas cost recoveries. 

Operating activities for 2017in 2019 produced lessmore net cash than the same period in 2016,2018 primarily due to under-recoveries incustomer growth, higher collections from customers, and lower costs for environmental remediations. This was partially offset with a cash payment related to a legal proceeding of a pricing dispute during the BGSS clause at SJG. During the secondthird quarter of 2017, SJG provided a customer BGSS bill credit based on a forecasted over-recovered clause balance at2019 (see Note 15 to the end of the BGSS year. In addition, SJG experienced higher spending for environmental remediation. Finally, during the first quarter of 2017, SJG made an $8.0 million payment to fund its pension plans. SJG did not make a contribution to its pension plans in 2016.consolidated financial statements).


Cash Flows from Investing Activities - SJG has a continuing need for cash resources for capital expenditures, primarily to invest in new and replacement facilities and equipment. SJG estimates the net cash outflows for capital expenditures for fiscal years 2018, 20192020, 2021 and 20202022 to be approximately $276.8$294.8 million, $262.9$409.0 million and $363.9$577.1 million, respectively. For capital expenditures, including those under the AIRP and SHARP, SJG expects to use short-term borrowings under both its commercial paper program and lines of credit from commercial banks to finance capital expenditures as incurred. From time to time, SJG may refinance the short-term debt incurred to support capital expenditures with long-term debt.


During 2017, SJG made a $4.9 million payment to fund company-owned life insurance.


Cash Flows from Financing Activities - SJG supplements its operating cash flow and credit lines with both debt and equity capital. Over the years, SJG has used long-term debt, primarily in the form of First Mortgage Bonds and MTN's, secured by the same pool of utility assets, to finance its long-term borrowing needs. These needs are primarily capital expenditures for property, plant and equipment.


SJI contributed equity infusions of $40.0 million and $65.0 million to SJG during the years ended December 31, 2017 and 2016, respectively. In December 2017, SJG declared and paid cash dividends of $20.0 million in 2017 to SJI. Cash dividends were not declared or paid by SJG to SJI in 2019 or 2018. SJG received a $40.0 million equity contribution from SJI in 2017; there was no equity contribution to SJG in 2019 or 2018. Future equity contributions will occur on an as needed basis.


For information on other financing activities at SJG, see the SJI Management & Discussion Analysis above.

Capital Structure - SJG’s capital structure was as follows:


 As of December 31,
 20192018
Common Equity49.0 %50.2 %
Long-Term Debt43.3 %44.5 %
Short-Term Debt7.7 %5.3 %
Total100.0%  100.0 %
 As of December 31, 
 2017 2016 
Common Equity51.3% 53.0% 
Long-Term Debt45.8% 40.4% 
Short-Term Debt2.9% 6.6% 
Total100.0% 100.0% 


COMMITMENTS AND CONTINGENCIES:

Costs for remediation projects, net of recoveries from ratepayers, for 2017, 20162019, 2018 and 20152017, amounted to net cash outflows of $42.7 million, $53.7 million and $39.9 million, $39.7 million and $22.1 million, respectively. TotalSee the Contractual Cash Obligations Table below for the total expected net cash outflows for remediation projects are expectedfor future years. As discussed in Notes 10, 11 and 15 to be $57.2 million, $48.2 million and $12.5 million for 2018, 2019 and 2020, respectively. Environmentalthe consolidated financial statements, environmental remediation costs are subject to recovery from ratepayers.


SJG has certain commitments for both pipeline capacity and gas supply for which SJG pays fees regardless of usage. Those commitments, as of December 31, 2017,2019, averaged $71.8$82.9 million annually and totaled $461.8$453.8 million over the contracts’ lives.  Approximately 21%31% of the financial commitments under these contracts expire during the next five years. SJG expects to renew each of these contracts under renewal provisions as provided in each contract. SJG recovers all such prudently incurred fees through rates via the BGSS.



57

SJG hasSee SJI’s Contractual Obligations discussion related to SJG’s long-term contracts for natural gas supplies. SJG committed to purchase a minimum of 6,250 dts/d and up to 25,000 dts/d of natural gas, from one supplier, for an original term of eight years at index-based prices. SJG has also committed to a purchase of a minimum of 55,000 dts/d and up to 70,000 dts/d, for a term of ten years at index-based prices. The obligations for these purchases havesupplies which are not been included in SJG's contractual obligationsthe table below because the actual volumes and prices are not fixed.below.


The following table summarizes SJG's contractual cash obligations and their applicable payment due dates as of December 31, 20172019 (in thousands):
Contractual Cash ObligationsTotal
Up to
1 Year
Years
2 & 3
Years
4 & 5
More than
5 Years
Principal Payments on Long-Term Debt$971,355  $417,909  $58,993  $80,168  $414,285  
Interest on Long-Term Debt202,890  24,464  40,202  35,280  102,944  
Commodity Supply Purchase Obligations477,065  100,414  150,188  58,591  167,872  
Environmental Remediation Costs131,262  29,569  38,956  49,283  13,454  
Construction Obligations230,353  230,353  —  —  —  
Operating Leases346  153  60  31  102  
New Jersey Clean Energy Program10,273  10,273  —  —  —  
Other Purchase Obligations1,875  1,875  —  —  —  
Total Contractual Cash Obligations$2,025,419  $815,010  $288,399  $223,353  $698,657  
Contractual Cash ObligationsTotal 
Up to
1 Year
 
Years
2 & 3
 
Years
4 & 5
 
More than
5 Years
Principal Payments on Long-Term Debt$829,173
 $63,809
 $236,818
 $58,993
 $469,553
Interest on Long-Term Debt250,187
 28,063
 43,698
 40,202
 138,224
Commodity Supply Purchase Obligations494,395
 94,406
 118,828
 59,773
 221,388
Environmental Remediation Costs171,696
 66,040
 60,697
 1,386
 43,573
Construction Obligations112,275
 112,275
 —
 —
 —
Operating Leases269
 180
 89
 —
 —
New Jersey Clean Energy Program13,154
 13,154
 —
 —
 —
Other Purchase Obligations2,437
 2,437
 —
 —
 —
          
Total Contractual Cash Obligations$1,873,586
 $380,364
 $460,130
 $160,354
 $872,738


Long-Term Debt in the table above does not include unamortized debt issuance costs of $7.3$6.3 million, which are reclassifiedrecorded as an offset to Long-Term Debt on the balance sheets.


Expected asset retirement obligations and the liability for unrecognized tax benefits are not included in the table above as the total obligation cannot be calculated due to the subjective nature of these costs and timing of anticipated payments. SJG made contributions to its employee pension plans totaling $8.0 million in January 2017;

SJG did not make a pension plan contribution in 2016.2019. Future pension contributions cannot be determined at this time. SJG's regulatory obligation to contribute $3.6 million annually to its postretirement benefit plans’ trusts, as discussed in Note 12 to the consolidated financial statements, is also not included as its duration is indefinite.


Pending Litigation - See SJG's disclosure in the Commitments and Contingencies section of SJI's Management Discussion above.


Off-Balance Sheet Arrangements - SJG has no off-balance sheet arrangements.



58

Item 7A. Quantitative and Qualitative Disclosures about Market Risks
 
South Jersey Industries, Inc.


Commodity Market Risks - Certain regulated and nonregulated SJI subsidiaries, including SJG, are involved in buying, selling, transporting and storing natural gas, and buying and selling retail electricity, and SREC's, for their own accounts as well as managing these activities for third parties. These subsidiaries are subject to market risk on expected future purchases and sales due to commodity price fluctuations. To hedge against this risk, SJI enters into a variety of physical and financial transactions including forward contracts, swaps, futures and options agreements. To manage these transactions, SJI has a well-defined risk management policy approved by SJI's Board of Directors that includes volumetric and monetary limits. Management reviews reports detailing activity daily. Generally, the derivative activities described above are entered into for risk management purposes.


As part of its gas purchasing strategy, SJG usesand ETG use financial contracts to hedge against forward price risk. These contracts are recoverable through SJG's and ETG's BGSS, subject to BPU approval.


The retail gas operations of SJE transact commodities on a physical basis, and SJE typically does not enter into financial derivative positions directly. SJRG manages risk in the natural gas markets for SJE as well as for its own portfolio by entering into the types of transactions noted above. The retail electric operations of SJE use forward physical and financial contracts to mitigate commodity price risk on fixed price electric contracts. It is management's policy, to the extent practical, within predetermined risk management policy guidelines, to have limited unmatched positions on a deal or portfolio basis while conducting these activities. As a result of holding open positions to a minimal level, the economic impact of changes in value of a particular transaction is substantially offset by an opposite change in the related hedge transaction.
 
SJI has entered into certain contracts to buy, sell, and transport natural gas and to buy and sell retail electricity.  SJI recorded the net pre-tax (loss) gaingains (losses) on these contracts of $(13.7)$(11.7) million, $26.9$34.5 million and $8.4$(13.7) million in earnings during 2017, 20162019, 2018 and 2015,2017, respectively, which are included with realized gains and losses in Operating Revenues - Nonutility on the consolidated statements of income.  


The fair value and maturity of these energy-trading contracts determined under the mark-to-market method as of December 31, 20172019 is as follows (in thousands):
Assets  
Source of Fair Value
Maturity
< 1 Year
Maturity
1 - 3 Years
Maturity
Beyond
3 Years
Total
Prices actively quoted$16,856  $75  $16,931  
Prices provided by other external sources13,629  3,921  291  17,841  
Prices based on internal models or other valuation methods22,407  2,777  179  25,363  
Total$52,892  $6,773  $470  $60,135  
Liabilities
Source of Fair Value
Maturity
 < 1 Year
Maturity
 1 - 3 Years
Maturity
Beyond
 3 Years
Total
Prices actively quoted$31,505  $2,752  $189  $34,446  
Prices provided by other external sources5,698  788  1,450  7,936  
Prices based on internal models or other valuation methods4,762  2,906  121  7,789  
Total$41,965  $6,446  $1,760  $50,171  
 
59

Assets    
Source of Fair Value
Maturity
< 1 Year
Maturity
1 - 3 Years
Maturity
Beyond
3 Years
Total
     
Prices actively quoted$5,022
$131
$2
$5,155
     
Prices provided by other external sources20,695
1,170
4
21,869
     
Prices based on internal models or other valuation methods16,422
4,601
80
21,103
     
Total$42,139
$5,902
$86
$48,127
     
Liabilities    
Source of Fair Value
Maturity
 < 1 Year
Maturity
 1 - 3 Years
Maturity
Beyond
 3 Years
Total
     
Prices actively quoted$9,530
$1,139
$18
$10,687
     
Prices provided by other external sources22,454
1,827
2
24,283
     
Prices based on internal models or other valuation methods14,954
2,852
187
17,993
     
Total$46,938
$5,818
$207
$52,963

•NYMEX (New York Mercantile Exchange) is the primary national commodities exchange on which natural gas is traded. Volumes of our NYMEX contracts included in the table above under "Prices actively quoted" are 27.247.1 MMdts with a weighted average settlement price of $3.02$2.64 per dt.
•Basis represents the differential to the NYMEX natural gas futures contract for delivering gas to a specific location. Volumes of our basis contracts, along with volumes of our discounted index related purchase and sales contracts, included in the table above under "Prices provided by other external sources" and "Prices based on internal models or other valuation methods" are 47.485.0 MMdts with a weighted average settlement price of $(0.50)$(0.55) per dt.
•Fixed Price Gas Daily represents the price of a NYMEX natural gas futures contract adjusted for the difference in price for delivering the gas at another location. Volumes of our Fixed Price Gas Daily contracts included in the table above under "Prices provided by other external sources" are 28.760.9 MMdts with a weighted average settlement price of $3.22$1.91 per dt.
•Volumes of electric included in the table above under "Prices based on internal models or other valuation methods" are 0.50.1 MMWh with a weighted average settlement price of $33.46$32.62 per MWh.
 
A reconciliation of SJI's estimated net fair value of energy-related derivatives follows (in thousands):
 
Net Derivatives - Energy Related Assets, January 1, 2019$29,800 
Contracts Settled During 2019, Net(29,887)
Other Changes in Fair Value from Continuing and New Contracts, Net10,051 
Net Derivatives - Energy Related Assets, December 31, 2019$9,964 
Net Derivatives - Energy Related Assets, January 1, 2017$16,271
Contracts Settled During 2017, Net(12,243)
Other Changes in Fair Value from Continuing and New Contracts, Net(8,864)
  
Net Derivatives - Energy Related Liabilities, December 31, 2017$(4,836)


Marina’s solar energy projects rely on returns from electricity and SRECs.  A decrease in the value of electricity and SRECs impacted by market conditions and/or legislative changes may negatively impact Marina's return on its investments as well as lead to impairment of the respective assets.  To hedge against this risk, Marina hedges a portion of its anticipated SREC production through the use of forward sales contracts.  The hedged percentage of projected SREC production related to in-service assets in New Jersey is 93% and 68% for energy years ending May 31, 2018 and 2019, respectively, and in Massachusetts is 54% for energy year ending December 31, 2018.  SREC production related to in-service assets in Maryland and Vermont is currently unhedged.  During 2017, SJI recorded impairment charges of $71.3 million on solar generating facilities, $43.9 million on those located in the state of Maryland, which was primarily driven asAs a result of decliningthe transaction to sell certain solar sites to a third party (see Note 1 to the consolidated financial statements), Marina will no longer generate SREC's on its own behalf and is no longer exposed to market conditions, specifically market prices of Marylandrisk associated with SRECs. As of December 31, 2017, Marina had total net solar assets of $433.7 million, of which $364.3 million are located in New Jersey, $42.8 million are located in Massachusetts, $10.1 million are located in Maryland, and $16.5 million are located in Vermont.

Interest Rate Risk- Our exposure to interest-rate risk relates to short-term and long-term variable-rate borrowings. Variable-rate debt outstanding, including short-term and long-term debt, at December 31, 20172019 was $646.4 million$1.30 billion and averaged $367.9 million$1.07 billion during 2017.2019. A hypothetical 100 basis point (1%) increase in interest rates on our average variable-rate debt outstanding would result in a $2.2$7.9 million increase in our annual interest expense, net of tax. The 100 basis point increase was chosen for illustrative purposes, as it provides a simple basis for calculating the impact of interest rate changes under a variety of interest rate scenarios. Over the past five years, the change in basis points (b.p.) of our average monthly interest rates from the beginning to end of each year was as follows: 2019 - 64 b.p. decrease; 2018 - 91 b.p. increase; 2017 - 82 b.p. increase; 2016 - 47 b.p. increase; and 2015 - 14 b.p. increase; 2014 - 1 b.p. decrease; 2013 - 16 b.p. decrease.increase.  At December 31, 2017,2019, our average interest rate on variable-rate debt was 2.49%3.17%.


We typically issue long-term debt either at fixed rates or use interest rate derivatives to limit our exposure to changes in interest rates on variable-rate, long-term debt. As of December 31, 2017,2019, the interest costs on $904.2 million$2.12 billion of our long-term debt was either at a fixed rate or hedged via an interest rate derivative.
 

As of December 31, 2017,2019, SJI's active interest rate swaps were as follows:
 
Notional AmountFixed Interest RateStart DateMaturityObligor
$20,000,000  3.049%  3/15/20173/15/2027SJI
$20,000,000  3.049%  3/15/20173/15/2027SJI
$10,000,000  3.049%  3/15/20173/15/2027SJI
$12,500,000  3.530%  12/1/20062/1/2036SJG
$12,500,000  3.430%  12/1/20062/1/2036SJG
 
Credit Risk - As of December 31, 2017,2019, SJI had approximately $6.5$15.4 million, or 13.5%25.7%, of the current and noncurrent Derivatives – Energy Related Assets transacted with one counterparty. This counterparty istwo counterparties. These counterparties are investment-grade rated with a rating of BBB+.rated.
 

60

As of December 31, 2017,2019, SJRG had $69.2$54.2 million of Accounts Receivable under sales contracts. Of that total, 50.8%38.9% were with regulated utilities or companies rated investment-grade or guaranteed by an investment-grade-rated parent or were with companies where we have a collateral arrangement or insurance coverage. The remainder of the Accounts Receivable were within approved credit limits.


South Jersey Gas Company:


The fair value and maturity of SJG's energy-trading and hedging contracts determined under the mark-to-market method as of December 31, 20172019 is as follows (in thousands):
 
Assets  
Source of Fair Value
Maturity
< 1 Year
Maturity
1 - 3 Years
Maturity
Beyond
3 Years
Total
Prices actively quoted$11,855  $5  $—  $11,860  
Prices provided by other external sources—  —  —  —  
Prices based on internal models or other valuation methods5,049  —  —  5,049  
Total$16,904  $5  $—  $16,909  
Liabilities
Source of Fair Value
Maturity
 < 1 Year
Maturity
 1 - 3 Years
Maturity
Beyond
 3 Years
Total
Prices actively quoted$14,470  $95  $—  $14,565  
Prices provided by other external sources187  —  —  187  
Prices based on internal models or other valuation methods14  —  —  14  
Total$14,671  $95  $—  $14,766  
Assets    
Source of Fair Value
Maturity
< 1 Year
Maturity
1 - 3 Years
Maturity
Beyond
3 Years
Total
     
Prices actively quoted$203
$5
$—
$208
     
Prices provided by other external sources230
—
—
230
     
Prices based on internal models or other valuation methods6,894
 —
6,894
     
Total$7,327
$5
$—
$7,332
     
Liabilities    
Source of Fair Value
Maturity
 < 1 Year
Maturity
 1 - 3 Years
Maturity
Beyond
 3 Years
Total
     
Prices actively quoted$1,580
$170
$—
$1,750
     
Prices provided by other external sources2,848
—
—
2,848
     
Prices based on internal models or other valuation methods4,842
 —
4,842
     
Total$9,270
$170
$—
$9,440


Contracted volumes of SJG's NYMEX contracts are 9.09.7 MMdts with a weighted-average settlement price of $2.98$2.64 per dt. Contracted volumes of SJG's Basis contracts are 0.30.6 MMdts with a weighted-average settlement price of $0.63$0.11 per dt.



A reconciliation of SJG's estimated net fair value of energy-related derivatives follows (in thousands):

Net Derivatives - Energy Related Assets, January 1, 2019$3,290 
Contracts Settled During 2019, Net(3,318)
Other Changes in Fair Value from Continuing and New Contracts, Net2,171 
Net Derivatives - Energy Related Assets, December 31, 2019$2,143 


61
Net Derivatives - Energy Related Assets, January 1, 2017$4,435
Contracts Settled During 2017, Net(4,062)
Other Changes in Fair Value from Continuing and New Contracts, Net(2,481)
  
Net Derivatives - Energy Related Liabilities, December 31, 2017$(2,108)


Interest Rate Risk - SJG's exposure to interest rate risk relates primarily to variable-rate borrowings. Variable-rate debt, including both short-term and long-term debt outstanding at December 31, 2017,2019, was $252.0$571.3 million and averaged $151.6$446.5 million during 2017.2019. A hypothetical 100 basis point (1%) increase in interest rates on SJG's average variable-rate debt outstanding would result in a $0.9$3.2 million increase in SJG's annual interest expense, net of tax. The 100 basis point increase was chosen for illustrative purposes, as it provides a simple basis for calculating the impact of interest rate changes under a variety of interest rate scenarios. Over the past five years, the change in basis points (b.p.) of SJG's average monthly interest rates from the beginning to end of each year was as follows: 2019 - 73 b.p. decrease; 2018 - 91 b.p. increase; 2017 - 91 b.p. increase; 2016 - 19 b.p. increase; 2015 - 20 b.p. increase; 2014 - 32 b.p. increase; and 2013 - 14 b.p. decrease.increase. As of December 31, 2017,2019, SJG's average interest rate on variable-rate debt was 2.28%2.94%.


SJG typically issues long-term debt either at fixed rates or uses interest rate derivatives to limit exposure to changes in interest rates on variable-rate, long-term debt. As of December 31, 2017,2019, the interest costs on $629.2$571.3 million of long-term debt was either at a fixed-rate or hedged via an interest rate derivative.


62

Item 8. Financial Statements and Supplementary Data
63
Table of Contents
Consolidated Statements of Consolidated Income
(In Thousands Except for Per Share Data)
 South Jersey Industries, Inc. and Subsidiaries
 Year Ended December 31,
 2017 2016 2015
Operating Revenues:     
Utility$512,482
 $453,819
 $528,763
Nonutility730,586
 582,681
 430,805
Total Operating Revenues1,243,068
 1,036,500
 959,568
Operating Expenses: 
  
  
Cost of Sales - (Excluding depreciation) 
  
  
 - Utility199,660
 167,154
 239,763
 - Nonutility646,567
 413,833
 319,579
Operations174,200
 151,957
 148,672
Impairment Charges91,299

—

—
Maintenance19,727
 17,549
 16,183
Depreciation100,718
 90,389
 72,451
Energy and Other Taxes6,487
 6,342
 6,026
Total Operating Expenses1,238,658
 847,224
 802,674
Operating Income4,410
 189,276
 156,894
      
Other Income and Expense15,474
 9,989
 9,510
Interest Charges(54,019) (31,449) (31,622)
(Loss) Income Before Income Taxes(34,135) 167,816
 134,782
Income Taxes24,937
 (54,151) (1,360)
Equity in Earnings (Losses) of Affiliated Companies5,794
 5,396
 (27,812)
(Loss) Income from Continuing Operations(3,404) 119,061
 105,610
Loss from Discontinued Operations - (Net of tax benefit)(86) (251) (503)
Net (Loss) Income$(3,490) $118,810
 $105,107
      
Basic (Loss) Earnings per Common Share: 
  
  
Continuing Operations$(0.04) $1.56
 $1.54
Discontinued Operations—
 —
 (0.01)
Basic (Loss) Earnings per Common Share$(0.04) $1.56
 $1.53
      
Average Shares of Common Stock Outstanding - Basic79,541
 76,362
 68,735
      
Diluted (Loss) Earnings per Common Share: 
  
  
Continuing Operations$(0.04) $1.56
 $1.53
Discontinued Operations—
 —
 (0.01)
Diluted (Loss) Earnings per Common Share$(0.04) $1.56
 $1.52
      
Average Shares of Common Stock Outstanding - Diluted79,541
 76,475
 68,931






Statements of Consolidated Comprehensive Income
(In Thousands)

 South Jersey Industries, Inc. and Subsidiaries
 Year Ended December 31,
 2017 2016 2015
Net (Loss) Income$(3,490) $118,810
 $105,107
      
Other Comprehensive Income (Loss), Net of Tax: 
  
  
      
Postretirement Liability Adjustment (A)(10,920) (3,197) 5,518
Unrealized Gain (Loss) on Available-for-Sale Securities (B)—
 118
 (53)
Unrealized Gain on Derivatives - Other (B)1,536
 197
 321
Other Comprehensive Loss of Affiliated Companies (B)—
 —
 (27)
      
Other Comprehensive (Loss) Income - Net of Tax(9,384) (2,882) 5,759
      
Comprehensive (Loss) Income$(12,874) $115,928
 $110,866
(A) Determined using a combined average statutory tax rate of 27% for 2017 and 40% for 2016 and 2015.
(B) Determined using a combined average statutory tax rate of 39% for 2017 and 40% for 2016 and 2015.

The accompanying notes are an integral part of the consolidated financial statements.





Statements of Consolidated Cash Flows (In Thousands)
 South Jersey Industries, Inc. and Subsidiaries
 Year Ended December 31,
 2017 2016 2015
Cash Flows from Operating Activities:     
Net (Loss) Income$(3,490) $118,810
 $105,107
Loss from Discontinued Operations86
 251
 503
(Loss) Income from Continuing Operations(3,404) 119,061
 105,610
Adjustments to Reconcile Income from Continuing Operations to Net Cash Provided by Operating Activities:     
   Gain on Sale of Assets(2,563) —
 —
   Impairment Charges91,299
 —
 —
   Loss on Extinguishment of Debt543
 —
 —
   Depreciation and Amortization123,486
 109,818
 91,042
   Net Unrealized Loss (Gain) on Derivatives - Energy Related13,667
 (26,935) (8,401)
   Unrealized Loss (Gain) on Derivatives - Other677
 (647) (96)
   Provision for Losses on Accounts Receivable6,949
 6,907
 14,730
   CIP Receivable/Payable915
 (24,943) (7,324)
   Deferred Gas Costs - Net of Recoveries(28,092) 11,753
 28,648
   Deferred SBC Costs - Net of Recoveries(5,578) (7,102) 9,557
   Stock-Based Compensation Expense4,254
 3,892
 2,213
   Deferred and Noncurrent Income Taxes - Net10,082
 55,789
 3,861
   Environmental Remediation Costs - Net of Recoveries(39,860) (39,731) (22,057)
   Gas Plant Cost of Removal(7,062) (6,070) (5,096)
   Pension Contribution(10,000) —
 (15,000)
   Changes in:     
      Accounts Receivable21
 (67,160) 92,624
      Inventories5,589
 387
 9,226
      Prepaid and Accrued Taxes - Net(23,366) 4,253
 (9,091)
      Accounts Payable and Other Accrued Liabilities58,858
 112,199
 (103,410)
      Derivatives - Energy Related899
 6,723
 (8,069)
      Other Assets and Liabilities (See Note 1)(6,989) 4,477
 8,796
   Cash Flows from Discontinued Operations(4) (44) (1,033)
      
Net Cash Provided by Operating Activities190,321
 262,627
 186,730
      
Cash Flows from Investing Activities: 
  
  
Capital Expenditures (See Note 1)(272,965) (279,423) (343,883)
Purchase of Available for Sale Securities—
 —
 (6,059)
Proceeds from Sale of Property, Plant and Equipment3,547
 —
 —
Investment in Long-Term Receivables(9,324) (10,886) (19,033)
Proceeds from Long-Term Receivables9,861
 10,014
 8,769
Notes Receivable22,884
 9,916
 (9,916)
Purchase of Company-Owned Life Insurance(9,180) (2,398) (2,328)
Acquisition of Subsidiary, Net of Cash & Restricted Cash Acquired (See Note 1)—
 —
 3,133
Investment in Affiliate(29,636) (12,943) (20,229)
  Return of Investment in Affiliate—
 4,750
 —
Advances on Notes Receivable - Affiliate(2,451) —
 (2,075)
  Net Repayment of Notes Receivable - Affiliate—
 672
 4,276
      
Net Cash Used in Investing Activities (See Note 1)(287,264) (280,298) (387,345)

      
Cash Flows from Financing Activities:     
Net Borrowings from (Repayments of) Short-Term Credit Facilities50,300
 (135,600) 186,000
Proceeds from Issuance of Long-Term Debt450,000
 61,000
 130,000
Payments for Issuance of Long-Term Debt(14,204) (147) (64)
Principal Repayments of Long-Term Debt(293,309) (49,366) (125,009)
Dividends on Common Stock(87,308) (82,380) (70,158)
Net Settlement of Restricted Stock (See Note 1)(751) (387) (333)
Proceeds from Sale of Common Stock—
 214,426
 63,192
Payment of Lease Obligation—
 (10,600) —
      
Net Cash Provided by (Used in) Financing Activities104,728
 (3,054) 183,628
      
Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash7,785
 (20,725) (16,987)
Cash, Cash Equivalents and Restricted Cash at Beginning of Year (See Note 1)31,910
 52,635
 69,622
      
Cash, Cash Equivalents and Restricted Cash at End of Year (See Note 1)$39,695
 $31,910
 $52,635
 

 

 

Supplemental Disclosures of Cash Flow Information     
   Cash paid (received) during the year for:     
      Interest (Net of Amounts Capitalized)$51,456
 $32,372
 $30,915
      Income Taxes (Refunds) Paid$(8,348) $194
 $1,828
      
Supplemental Disclosures of Non-Cash Investing Activities     
      Capital Expenditures acquired on account but unpaid as of year-end$32,253
 $39,130
 $51,433
      Notes Receivable from Affiliate Exchanged for Notes Receivable from a Third Party$—
 $—
 $16,389
      Notes Receivable Exchanged for Accounts Payable$3,841
 $10,168
 $—

The accompanying notes are an integral part of the consolidated financial statements.

Consolidated Balance Sheets
(In Thousands)
 South Jersey Industries, Inc. and Subsidiaries
 December 31,
 2017 2016
Assets   
Property, Plant and Equipment:   
Utility Plant, at original cost$2,652,244
 $2,424,134
Accumulated Depreciation(498,161) (471,222)
Nonutility Property and Equipment, at cost741,027
 821,942
Accumulated Depreciation(194,913) (151,084)
    
Property, Plant and Equipment - Net2,700,197
 2,623,770
    
Investments: 
  
Available-for-Sale Securities36
 32
Restricted Investments31,876
 13,628
Investment in Affiliates62,292
 28,906
    
Total Investments94,204
 42,566
    
Current Assets: 
  
Cash and Cash Equivalents7,819
 18,282
Accounts Receivable202,379
 222,339
Unbilled Revenues73,377
 59,680
Provision for Uncollectibles(13,988) (12,744)
Notes Receivable—
 1,454
Notes Receivable - Affiliate4,913
 2,461
Natural Gas in Storage, average cost48,513
 53,857
Materials and Supplies, average cost4,239
 6,753
Prepaid Taxes41,355
 17,471
Derivatives - Energy Related Assets42,139
 72,391
Other Prepayments and Current Assets28,247
 31,369
    
Total Current Assets438,993
 473,313
    
Regulatory and Other Noncurrent Assets: 
  
Regulatory Assets469,224
 410,746
Derivatives - Energy Related Assets5,988
 8,502
Notes Receivable - Affiliate13,275
 13,275
Contract Receivables28,721
 29,037
Notes Receivable—
 25,271
Goodwill3,578
 4,838
Identifiable Intangible Assets12,480
 15,820
Other98,426
 83,429
    
Total Regulatory and Other Noncurrent Assets631,692
 590,918
    
Total Assets$3,865,086
 $3,730,567
South Jersey Industries, Inc. and Subsidiaries
Year Ended December 31,
 201920182017
Operating Revenues:  
Utility$896,874  $670,715  $512,482  
Nonutility731,752  970,623  730,586  
Total Operating Revenues1,628,626  1,641,338  1,243,068  
Operating Expenses:   
Cost of Sales - (Excluding depreciation and amortization)   
 - Utility351,284  258,781  199,660  
 - Nonutility680,683  796,627  646,567  
Operations238,752  256,862  169,767  
Impairment Charges10,745  105,280  91,299  
Maintenance37,341  32,162  19,727  
Depreciation99,753  96,723  100,718  
Energy and Other Taxes11,996  9,537  6,487  
Net Gain on Sales of Assets(3,133) (15,379) —  
Total Operating Expenses1,427,421  1,540,593  1,234,225  
Operating Income201,205  100,745  8,843  
Other Income and Expense4,208  2,404  11,041  
Interest Charges(114,477) (90,296) (54,019) 
Income (Loss) Before Income Taxes90,936  12,853  (34,135) 
Income Taxes(21,061) (561) 24,937  
Equity in Earnings of Affiliated Companies7,314  5,611  5,794  
Income (Loss) from Continuing Operations77,189  17,903  (3,404) 
Loss from Discontinued Operations - (Net of tax benefit)(272) (240) (86) 
Net Income (Loss)$76,917  $17,663  $(3,490) 
Basic Earnings (Loss) per Common Share:   
Continuing Operations$0.84  $0.21  $(0.04) 
Discontinued Operations—  —  —  
Basic Earnings (Loss) per Common Share$0.84  $0.21  $(0.04) 
Average Shares of Common Stock Outstanding - Basic92,130  83,693  79,541  
Diluted Earnings (Loss) per Common Share:   
Continuing Operations$0.84  $0.21  $(0.04) 
Discontinued Operations—  —  —  
Diluted Earnings (Loss) per Common Share$0.84  $0.21  $(0.04) 
Average Shares of Common Stock Outstanding - Diluted92,253  84,471  79,541  
 
The accompanying notes are an integral part of the consolidated financial statements.







64

 2017 2016
Capitalization and Liabilities   
Equity:   
Common Stock: Par Value $1.25 per share; Authorized 120,000,000 shares; Outstanding Shares: 79,549,080 (2017) and 79,478,055 (2016)   
     Balance at Beginning of Year$99,347
 $88,707
     Common Stock Issued or Granted Under Stock Plans89
 10,640
     Balance at End of Year99,436
 99,347
Premium on Common Stock709,658
 706,943
Treasury Stock (at par)(271) (266)
Accumulated Other Comprehensive Loss(36,765) (27,381)
Retained Earnings420,351
 510,597
    
Total Equity1,192,409
 1,289,240
    
Long-Term Debt1,122,999
 808,005
    
Total Capitalization2,315,408
 2,097,245
    
Current Liabilities: 
  
Notes Payable346,400
 296,100
Current Portion of Long-Term Debt63,809
 231,909
Accounts Payable284,899
 243,669
Customer Deposits and Credit Balances43,398
 48,068
Environmental Remediation Costs66,372
 46,120
Taxes Accrued2,932
 2,082
Derivatives - Energy Related Liabilities46,938
 60,082
Derivatives - Other Current748
 681
Deferred Contract Revenues259
 —
Interest Accrued9,079
 6,231
Pension Benefits2,388
 2,463
Other Current Liabilities15,860
 15,219
    
Total Current Liabilities883,082
 952,624
    
Deferred Credits and Other Noncurrent Liabilities: 
  
Deferred Income Taxes - Net86,884
 343,549
Pension and Other Postretirement Benefits101,544
 95,235
Environmental Remediation Costs106,483
 108,893
Asset Retirement Obligations59,497
 59,427
Derivatives - Energy Related Liabilities6,025
 4,540
Derivatives - Other Noncurrent9,622
 9,349
Regulatory Liabilities287,105
 49,121
Other9,436
 10,584
    
Total Deferred Credits and Other Noncurrent Liabilities666,596
 680,698
    
Commitments and Contingencies  (Note 15)

 

    
Total Capitalization and Liabilities$3,865,086
 $3,730,567
Consolidated Statements of Comprehensive Income
(In Thousands)

South Jersey Industries, Inc. and Subsidiaries
Year Ended December 31,
 201920182017
Net Income (Loss)$76,917  $17,663  $(3,490) 
Other Comprehensive Income (Loss), Net of Tax:  
Postretirement Liability Adjustment, net of tax of $2,539, $(3,731), and $4,106, respectively(6,498) 10,636  (10,920) 
Reclassification of Unrealized Gain on Derivatives - Other to Net Income, net of tax of $(11), $(12), $(988), respectively35  34  1,536  
Other Comprehensive Income (Loss) - Net of Tax(6,463) 10,670  (9,384) 
Comprehensive Income (Loss)$70,454  $28,333  $(12,874) 
 

The accompanying notes are an integral part of the consolidated financial statements.





65

Consolidated Statements of Changes in Equity and Comprehensive IncomeCash Flows (In Thousands)
(In Thousands)

South Jersey Industries, Inc. and Subsidiaries
Year Ended December 31,
 201920182017
Cash Flows from Operating Activities:
Net Income (Loss)$76,917  $17,663  $(3,490) 
Loss from Discontinued Operations272  240  86  
Income (Loss) from Continuing Operations77,189  17,903  (3,404) 
Adjustments to Reconcile Income from Continuing Operations to Net Cash Provided by Operating Activities:
   Net Gain on Sales of Assets(3,133) (15,379) (2,563) 
   Gain on Insurance Proceeds(794) —  —  
   Impairment Charges10,745  105,280  91,299  
   Loss on Extinguishment of Debt—  —  543  
   Depreciation and Amortization133,385  132,914  123,486  
   Net Unrealized Loss (Gain) on Derivatives - Energy Related11,748  (34,447) 13,667  
   Unrealized Loss (Gain) on Derivatives - Other2,798  (1,337) 677  
   Provision for Losses on Accounts Receivable10,432  7,977  6,949  
   CIP Receivable/Payable922  32,523  915  
   Deferred Gas Costs - Net of Recoveries9,712  (46,495) (28,092) 
   Deferred SBC Costs - Net of Recoveries695  311  (5,578) 
   Stock-Based Compensation Expense5,209  4,144  4,254  
   Deferred and Noncurrent Income Taxes - Net21,543  10,392  10,082  
   Environmental Remediation Costs - Net of Recoveries(49,180) (59,307) (39,860) 
   Gas Plant Cost of Removal(18,823) (11,184) (7,062) 
   Pension Contribution—  —  (10,000) 
   Changes in:
      Accounts Receivable92,614  (106,283) 21  
      Inventories6,177  566  5,589  
      Prepaid and Accrued Taxes - Net76  13,418  (23,366) 
      Accounts Payable and Other Accrued Liabilities(137,717) 114,371  58,858  
      Derivatives - Energy Related6,942  5,208  899  
      Other Assets and Liabilities(59,488) (26,999) (6,989) 
   Cash Flows from Discontinued Operations—  7  (4) 
Net Cash Provided by Operating Activities121,052  143,583  190,321  
Cash Flows from Investing Activities:  
Capital Expenditures(504,212) (341,120) (272,965) 
Acquisition-related Working Capital Settlement15,600  —  —  
Cash Paid for Acquisition, Net of Cash Acquired(3,952) (1,740,285) —  
Cash Paid for Purchase of New Contract—  (11,339) —  
Proceeds from Sale of Property, Plant and Equipment26,938  310,644  3,547  
Investment in Long-Term Receivables(15,718) (8,643) (9,324) 
Proceeds from Long-Term Receivables10,301  9,813  9,861  
Notes Receivable—  —  22,884  
Proceeds from (Purchase of) Company-Owned Life Insurance1,694  (1,298) (9,180) 
Investment in Affiliate(4,866) (9,524) (29,636) 
Advances on Notes Receivable - Affiliate(3,433) —  (2,451) 
  Net Repayment of Notes Receivable - Affiliate—  2,967  —  
66

 South Jersey Industries, Inc. and Subsidiaries
 Years Ended December 31, 2015, 2016 and 2017
             
  Common Stock Premium on Common Stock Treasury Stock Accumulated Other Comprehensive Loss Retained Earnings Total
             
Balance at January 1, 2015 $85,418
 $438,384
 $(330) $(30,258) $439,218
 $932,432
Net Income —
 —
 —
 —
 105,107
 105,107
Other Comprehensive Income, Net of Tax —
 —
 —
 5,759
 —
 5,759
Common Stock Issued or Granted Under Stock Plans 3,289
 61,076
 34
 —
 —
 64,399
Cash Dividends Declared - Common Stock ($1.02 per share) —
 —
 —
 —
 (70,158) (70,158)
             
Balance at December 31, 2015 88,707
 499,460
 (296) (24,499) 474,167
 1,037,539
Net Income —
 —
 —
 —
 118,810
 118,810
Other Comprehensive Loss, Net of Tax —
 —
 —
 (2,882) —
 (2,882)
Common Stock Issued or Granted Through Equity Offering or Stock Plans 10,640
 207,483
 30
 —
 —
 218,153
Cash Dividends Declared - Common Stock ($1.07 per share) —
 —
 —
 —
 (82,380) (82,380)
             
Balance at December 31, 2016 99,347
 706,943
 (266) (27,381) 510,597
 1,289,240
Net Loss —
 —
 —
 —
 (3,490) (3,490)
Other Comprehensive Loss, Net of Tax —
 —
 —
 (9,384) —
 (9,384)
Common Stock Issued or Granted Under Stock Plans 89
 2,715
 (5) —
 —
 2,799
Cash Dividends Declared - Common Stock ($1.10 per share) —
 —
 —
 —
 (87,308) (87,308)
Excess Tax Benefit on Restricted Stock —
 —
 —
 —
 552
 552
             
Balance at December 31, 2017 $99,436
 $709,658
 $(271) $(36,765) $420,351
 $1,192,409
Net Cash Used in Investing Activities(477,648) (1,788,785) (287,264) 
Cash Flows from Financing Activities:
Net Borrowings from (Repayments of) Short-Term Credit Facilities578,200  (75,900) 50,300  
Proceeds from Issuance of Long-Term Debt429,657  2,432,500  450,000  
Payments for Issuance of Long-Term Debt(2,744) (21,574) (14,204) 
Principal Repayments of Long-Term Debt(733,909) (768,909) (293,309) 
Dividends on Common Stock(106,938) (94,756) (87,308) 
Net Settlement of Restricted Stock—  (776) (751) 
Proceeds from Sale of Common Stock189,032  173,750  —  
Payments for the Issuance of Common Stock—  (7,149) —  
Net Cash Provided by Financing Activities353,298  1,637,186  104,728  
Net (Decrease) Increase in Cash, Cash Equivalents and Restricted Cash(3,298) (8,016) 7,785  
Cash, Cash Equivalents and Restricted Cash at Beginning of Year31,679  39,695  31,910  
Cash, Cash Equivalents and Restricted Cash at End of Year$28,381  $31,679  $39,695  
Supplemental Disclosures of Cash Flow Information
   Cash paid (received) during the year for:
      Interest (Net of Amounts Capitalized)$114,015  $84,792  $51,456  
      Income Taxes (Net of Refunds)$(10,639) $(20,004) $(8,348) 
Supplemental Disclosures of Non-Cash Investing Activities
      Capital Expenditures acquired on account but unpaid as of year-end$54,321  $44,184  $32,253  
      Notes Receivable Exchanged for Accounts Payable$—  $—  $3,841  



The accompanying notes are an integral part of the consolidated financial statements.

67

Disclosure of Changes In Accumulated Other Comprehensive Loss Balances (a)Consolidated Balance Sheets
(In Thousands)
  
Postretirement
Liability
Adjustment (A)
 
Unrealized Gain
(Loss) on
Derivatives-Other (B)
 
Unrealized Gain
(Loss) on Available-
for-Sale Securities (B)
 
Other
Comprehensive
Income (Loss) of
Affiliated
Companies (B)
 
Accumulated
Other
Comprehensive
Loss
   
  
  
  
  
Balance at January 1, 2015 $(27,663) $(2,450) $(75) $(70) $(30,258)
Changes During Year 5,518
 321
 (53) (27) 5,759
Balance at December 31, 2015 (22,145) (2,129) (128) (97) (24,499)
Changes During Year (3,197) 197
 118
 —
 (2,882)
Balance at December 31, 2016 (25,342) (1,932) (10) (97) (27,381)
Changes During Year (10,920) 1,536
 —
 —
 (9,384)
Balance at December 31, 2017 $(36,262) $(396) $(10) $(97) $(36,765)
(A) Determined using a combined average statutory tax rate of 27% for 2017 and 40% for 2016 and 2015.
(B) Determined using a combined average statutory tax rate of 39% for 2017 and 40% for 2016 and 2015.
South Jersey Industries, Inc. and Subsidiaries
December 31,
20192018
Assets  
Property, Plant and Equipment:  
Utility Plant, at original cost$4,905,350  $4,341,113  
Accumulated Depreciation(843,998) (787,243) 
Nonutility Property and Equipment, at cost25,991  152,232  
Accumulated Depreciation(13,807) (52,629) 
Property, Plant and Equipment - Net4,073,536  3,653,473  
Investments:  
Available-for-Sale Securities40  41  
Restricted21,964  1,649  
Investment in Affiliates87,087  76,122  
Total Investments109,091  77,812  
Current Assets:  
Cash and Cash Equivalents6,417  30,030  
Accounts Receivable253,661  337,502  
Unbilled Revenues84,821  79,538  
Provision for Uncollectibles(19,829) (18,842) 
Notes Receivable - Affiliate5,379  1,945  
Natural Gas in Storage, average cost54,153  60,425  
Materials and Supplies, average cost1,164  1,743  
Prepaid Taxes26,918  30,694  
Derivatives - Energy Related Assets52,892  54,021  
Assets Held For Sale143,440  59,588  
Other Prepayments and Current Assets43,492  26,548  
Total Current Assets652,508  663,192  
Regulatory and Other Noncurrent Assets:  
Regulatory Assets665,932  662,969  
Derivatives - Energy Related Assets7,243  7,169  
Notes Receivable - Affiliate12,720  13,275  
Contract Receivables30,958  27,961  
Goodwill702,070  734,607  
Other111,282  116,119  
Total Regulatory and Other Noncurrent Assets1,530,205  1,562,100  
Total Assets$6,365,340  $5,956,577  
 
The accompanying notes are an integral part of the consolidated financial statements.



68


20192018
Capitalization and Liabilities  
Equity:  
Common Stock: Par Value $1.25 per share; Authorized 120,000,000 shares; Outstanding Shares: 92,394,155 (2019) and 85,506,218 (2018)
     Balance at Beginning of Year$106,883  $99,436  
     Common Stock Issued or Granted Under Stock Plans8,610  7,447  
     Balance at End of Year115,493  106,883  
Premium on Common Stock1,027,902  843,268  
Treasury Stock (at par)(289) (292) 
Accumulated Other Comprehensive Loss(32,558) (26,095) 
Retained Earnings313,237  343,258  
Total Equity1,423,785  1,267,022  
Long-Term Debt2,070,086  2,106,863  
Total Capitalization3,493,871  3,373,885  
Current Liabilities:  
Notes Payable848,700  270,500  
Current Portion of Long-Term Debt467,909  733,909  
Accounts Payable232,242  410,463  
Customer Deposits and Credit Balances35,004  32,058  
Environmental Remediation Costs43,849  47,592  
Taxes Accrued2,235  5,881  
Derivatives - Energy Related Liabilities41,965  24,134  
Derivatives - Other Current1,155  588  
Liabilities Held for Sale6,043  —  
Deferred Contract Revenues—  1,772  
Interest Accrued13,580  14,208  
Pension Benefits3,727  3,631  
Other Current Liabilities35,486  36,102  
Total Current Liabilities1,731,895  1,580,838  
Deferred Credits and Other Noncurrent Liabilities:  
Deferred Income Taxes - Net92,166  85,836  
Pension and Other Postretirement Benefits114,055  110,112  
Environmental Remediation Costs189,036  206,058  
Asset Retirement Obligations263,950  80,163  
Derivatives - Energy Related Liabilities8,206  7,256  
Derivatives - Other Noncurrent11,505  7,285  
Regulatory Liabilities442,918  478,499  
Other17,738  26,645  
Total Deferred Credits and Other Noncurrent Liabilities1,139,574  1,001,854  
Commitments and Contingencies  (Note 15)
Total Capitalization and Liabilities$6,365,340  $5,956,577  
The accompanying notes are an integral part of the consolidated financial statements.
69

Consolidated Statements of Changes in Equity and Comprehensive Income
(In Thousands)

 South Jersey Industries, Inc. and Subsidiaries
 Years Ended December 31, 2017, 2018 and 2019
 
 Common StockPremium on Common StockTreasury StockAccumulated Other Comprehensive LossRetained EarningsTotal
 
Balance at January 1, 2017$99,347  $706,943  $(266) $(27,381) $510,597  $1,289,240  
Net Loss—  —  —  —  (3,490) (3,490) 
Other Comprehensive Loss, Net of Tax—  —  —  (9,384) —  (9,384) 
Common Stock Issued or Granted Through Equity Offering or Stock Plans89  2,715  (5) —  —  2,799  
Cash Dividends Declared - Common Stock ($1.10 per share)—  —  —  —  (87,308) (87,308) 
Excess Tax Benefit on Restricted Stock—  —  —  —  552  552  
 
Balance at December 31, 201799,436  709,658  (271) (36,765) 420,351  1,192,409  
Net Income—  —  —  —  17,663  17,663  
Other Comprehensive Loss, Net of Tax—  —  —  10,670  —  10,670  
Common Stock Issued or Granted Under Stock Plans7,447  133,610  (21) —  —  141,036  
Cash Dividends Declared - Common Stock ($1.13 per share)—  —  —  —  (94,756) (94,756) 
Balance at December 31, 2018106,883  843,268  (292) (26,095) 343,258  1,267,022  
Net Income—  —  —  —  76,917  76,917  
Other Comprehensive Loss, Net of Tax—  —  —  (6,463) —  (6,463) 
Common Stock Issued or Granted Through Equity Offering or Stock Plans8,610  184,634  3  —  —  193,247  
Cash Dividends Declared - Common Stock ($1.16 per share)—  —  —  —  (106,938) (106,938) 
Balance at December 31, 2019$115,493  $1,027,902  $(289) $(32,558) $313,237  $1,423,785  


70

Disclosure of Changes In AOCL Balances
(In Thousands)
 
Postretirement
Liability
Adjustment (A)
Unrealized Gain
(Loss) on
Derivatives-Other (B)
Unrealized Gain
(Loss) on Available-
for-Sale Securities		Other
Comprehensive
Income (Loss) of
Affiliated
Companies
Accumulated
Other
Comprehensive
Loss
      
Balance at January 1, 2017$(25,342) $(1,932) $(10) $(97) $(27,381) 
Changes During Year(10,920) 1,536  —  —  (9,384) 
Balance at December 31, 2017(36,262) (396) (10) (97) (36,765) 
Changes During Year10,636  34  —  —  10,670  
Balance at December 31, 2018(25,626) (362) (10) (97) (26,095) 
Changes During Year(6,498) 35  —  —  (6,463) 
Balance at December 31, 2019$(32,124) $(327) $(10) $(97) $(32,558) 
(A) These amounts are net of tax of $2,539, $(3,731) and $4,106 for the years ended December 31, 2019, 2018 and 2017, respectively.
(B) These amounts are net of tax of $(11), $(12) and $(988) for the years ended December 31, 2019, 2018 and 2017, respectively.
The accompanying notes are an integral part of the consolidated financial statements.


71

SOUTH JERSEY GAS COMPANY
STATEMENTS OF INCOME
(In Thousands)


 Year Ended December 31,
 201920182017
Operating Revenues$569,226  $548,000  $517,254  
Operating Expenses: 
Cost of Sales (Excluding depreciation and amortization)211,344  209,649  204,432  
Operations108,638  112,920  96,604  
Maintenance30,899  28,742  19,727  
Depreciation65,965  59,755  53,887  
Energy and Other Taxes4,886  4,246  3,729  
Total Operating Expenses421,732  415,312  378,379  
Operating Income147,494  132,688  138,875  
Other Income and Expense4,376  4,685  4,087  
Interest Charges(31,654) (28,011) (24,705) 
Income Before Income Taxes120,216  109,362  118,257  
Income Taxes(32,822) (26,413) (45,700) 
Net Income$87,394  $82,949  $72,557  
 Year Ended December 31,
 2017 2016 2015
Operating Revenues$517,254
 $461,055
 $534,290
Operating Expenses:     
Cost of Sales (Excluding depreciation)204,432
 174,390
 245,290
Operations98,992
 95,609
 107,836
Maintenance19,727
 17,549
 16,183
Depreciation53,887
 47,432
 41,365
Energy and Other Taxes3,729
 3,620
 4,031
Total Operating Expenses380,767
 338,600
 414,705
Operating Income136,487
 122,455
 119,585
Other Income and Expense6,475
 3,831
 3,844
Interest Charges(24,705) (17,875) (19,906)
Income Before Income Taxes118,257
 108,411
 103,523
Income Taxes(45,700) (39,366) (36,945)
Net Income$72,557
 $69,045
 $66,578


The accompanying notes are an integral part of the financial statements.



72

SOUTH JERSEY GAS COMPANY
STATEMENTS OF COMPREHENSIVE INCOME
(In Thousands)


Year Ended December 31,
201920182017
Net Income$87,394  $82,949  $72,557  
Other Comprehensive Income (Loss), Net of Tax:
Postretirement Liability Adjustment, net of tax of $2,241, $(1,354), and $4,164, respectively(5,553) 3,606  (11,090) 
Reclassification of Unrealized Gain on Derivatives - Other to Net Income, net of tax of $(11), $(12), and $(19), respectively35  34  27  
Other Comprehensive Income (Loss) - Net of Tax(5,518) 3,640  (11,063) 
Comprehensive Income$81,876  $86,589  $61,494  
 Year Ended December 31,
 2017 2016 2015
Net Income$72,557
 $69,045
 $66,578
      
Other Comprehensive Income (Loss), Net of Tax:     
      
Postretirement Liability Adjustment (A)(11,090) (2,197) 1,617
Unrealized Gain (Loss) on Available-for-Sale Securities (B)—
 98
 (23)
Unrealized Gain on Derivatives - Other (B)27
 27
 23
      
Other Comprehensive (Loss) Income - Net of Tax(11,063) (2,072) 1,617
      
Comprehensive Income$61,494
 $66,973
 $68,195

(A) Determined using a combined average statutory tax rate of 27% for 2017 and 40% for 2016 and 2015.
(B) Determined using a combined average statutory tax rate of 39% for 2017 and 40% for 2016 and 2015.


The accompanying notes are an integral part of the financial statements.



73

SOUTH JERSEY GAS COMPANY
STATEMENTS OF CASH FLOWS
(In Thousands)
 Year Ended December 31,
 201920182017
Cash Flows from Operating Activities:
Net Income$87,394  $82,949  $72,557  
Adjustments to Reconcile Income from Continuing Operations to Net Cash Provided by Operating Activities:
Depreciation and Amortization93,910  82,622  71,654  
Provision for Losses on Accounts Receivable7,193  7,997  6,949  
CIP Receivable/Payable922  32,523  915  
Deferred Gas Costs - Net of Recoveries9,712  (46,495) (28,092) 
Deferred SBC Costs - Net of Recoveries695  311  (5,578) 
Environmental Remediation Costs - Net of Recoveries(42,654) (53,685) (39,860) 
Deferred and Noncurrent Income Taxes and Credits - Net32,822  39,179  78,712  
Gas Plant Cost of Removal(8,931) (6,899) (7,062) 
Pension Contribution—  —  (7,997) 
Changes in:
Accounts Receivable8,182  (21,749) (28,129) 
Inventories1,497  (1,198) (3,222) 
Prepaid and Accrued Taxes - Net9,241  9,685  (20,993) 
Other Prepayments and Current Assets(13,794) 1,390  1,183  
Gas Purchases Payable(31,129) 5,149  19,526  
Accounts Payable and Other Accrued Liabilities  2,370  (15,194) (1,753) 
Other Assets(25,188) (6,705) (16,925) 
Other Liabilities(537) 3,094  14,784  
Net Cash Provided by Operating Activities131,705  112,974  106,669  
Cash Flows from Investing Activities:         
Capital Expenditures(257,654) (241,873) (248,864) 
Purchase of Company Owned Life Insurance—  —  (4,875) 
Investment in Long-Term Receivables(15,718) (8,643) (9,324) 
Proceeds from Long-Term Receivables10,301  9,813  9,861  
Net Cash Used in Investing Activities(263,071) (240,703) (253,202) 
Cash Flows from Financing Activities:         
Net Borrowings from (Repayments of) Short-Term Credit Facilities63,800  55,500  (52,300) 
Proceeds from Issuance of Long-Term Debt90,000  310,000  400,000  
Principal Repayments of Long-Term Debt(18,909) (238,909) (215,909) 
Payments for Issuance of Long-Term Debt(36) (219) (2,030) 
Dividends on Common Stock—  —  (20,000) 
Additional Investment by Shareholder—  —  40,000  
Net Cash Provided by Financing Activities134,855  126,372  149,761  
Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash3,489  (1,357) 3,228  
Cash, Cash Equivalents and Restricted Cash at Beginning of Period3,262  4,619  1,391  
Cash, Cash Equivalents and Restricted Cash at End of Period$6,751  $3,262  $4,619  
Supplemental Disclosures of Cash Flow Information         
   Cash paid during the year for:
74

 Year Ended December 31,
 2017 2016 2015
Cash Flows from Operating Activities:     
Net Income$72,557
 $69,045
 $66,578
Provided by Operating Activities:     
Depreciation and Amortization71,654
 63,901
 58,668
Provision for Losses on Accounts Receivable6,949
 6,993
 14,689
CIP Receivable/Payable915
 (24,943) (7,324)
Deferred Gas Costs - Net of Recoveries(28,092) 11,753
 28,648
Deferred SBC Costs - Net of Recoveries(5,578) (7,102) 9,557
Environmental Remediation Costs - Net of Recoveries(39,860) (39,735) (22,058)
Deferred and Noncurrent Income Taxes and Credits - Net78,712
 40,980
 39,148
Gas Plant Cost of Removal(7,062) (6,070) (5,096)
Pension Contribution(7,997) —
 (12,020)
Changes in:     
Accounts Receivable(28,129) (24,867) 8,597
Inventories(3,222) 2,696
 11,198
Prepaid and Accrued Taxes - Net(20,993) 3,980
 (7,129)
Other Prepayments and Current Assets1,183
 (448) (9,717)
Gas Purchases Payable19,526
 14,879
 (13,423)
Accounts Payable and Other Accrued Liabilities(1,753) 35,982
 (2,264)
Other Assets(16,925) (7,065) 4,996
Other Liabilities (See Note 1)14,784
 2,183
 1,504
Net Cash Provided by Operating Activities106,669
 142,162
 164,552
      
Cash Flows from Investing Activities: 
  
  
Capital Expenditures(248,864) (225,287) (207,785)
Note Receivable—
 9,916
 (9,916)
Purchase of Company Owned Life Insurance(4,875) —
 —
Investment in Long-Term Receivables(9,324) (10,886) (19,033)
Proceeds from Long-Term Receivables9,861
 10,014
 8,769
Net Cash Used in Investing Activities (See Note 1)(253,202) (216,243) (227,965)
      
Cash Flows from Financing Activities: 
  
  
Net (Repayments of) Borrowings from Short-Term Credit Facilities(52,300) (30,100) 33,000
Proceeds from Issuance of Long-Term Debt400,000
 61,000
 80,000
Principal Repayments of Long-Term Debt(215,909) (27,909) (11,009)
Payments for Issuance of Long-Term Debt(2,030) (63) (9)
Dividends on Common Stock(20,000) —
 (40,764)
Additional Investment by Shareholder40,000
 65,000
 —
Net Cash Provided by Financing Activities149,761
 67,928
 61,218
      
Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash3,228
 (6,153) (2,195)
Cash, Cash Equivalents and Restricted Cash at Beginning of Period (See Note 1)1,391
 7,544
 9,739
      
Cash, Cash Equivalents and Restricted Cash at End of Period (See Note 1)$4,619
 $1,391
 $7,544
      
      
Supplemental Disclosures of Cash Flow Information 
  
  
     Interest (Net of Amounts Capitalized)$31,076  $28,583  $23,729  
     Income Taxes (Net of Refunds)$(14,122) $(21,742) $(8,476) 
Supplemental Disclosures of Noncash Investing Activities
     Capital Expenditures acquired on account but not paid at year-end$36,040  $32,272  $25,889  


The accompanying notes are an integral part of the financial statements.

75
   Cash paid during the year for:     
     Interest (Net of Amounts Capitalized)$23,729
 $18,497
 $19,373
     Income Taxes (Net of Refunds)$(8,476) $(1) $(1,665)
      
Supplemental Disclosures of Noncash Investing Activities     
     Capital Expenditures acquired on account but not paid at year-end$25,889
 $25,275
 $24,857



SOUTH JERSEY GAS COMPANY
BALANCE SHEETS
(In Thousands)
 
December 31,
2017		 December 31,
2016		December 31,
2019		December 31,
2018
Assets   Assets
Property, Plant and Equipment:   Property, Plant and Equipment:
Utility Plant, at original cost$2,652,244
 $2,424,134
Utility Plant, at original cost$3,154,736  $2,907,202  
Accumulated Depreciation(498,161) (471,222)Accumulated Depreciation(558,634) (523,743) 
   
Property, Plant and Equipment - Net2,154,083
 1,952,912
Property, Plant and Equipment - Net2,596,102  2,383,459  
   
Investments: 
  
Investments:  
Restricted Investments2,912
 32
Restricted Investments4,073  1,278  
   
Total Investments2,912
 32
Total Investments4,073  1,278  
   
Current Assets: 
  
Current Assets:  
Cash and Cash Equivalents1,707
 1,359
Cash and Cash Equivalents2,678  1,984  
Accounts Receivable78,571
 69,651
Accounts Receivable84,940  101,572  
Accounts Receivable - Related Parties988
 1,355
Accounts Receivable - Related Parties2,333  2,442  
Unbilled Revenues54,980
 41,754
Unbilled Revenues45,016  43,271  
Provision for Uncollectibles(13,799) (12,570)Provision for Uncollectibles(14,032) (13,643) 
Natural Gas in Storage, average cost14,932
 11,621
Natural Gas in Storage, average cost14,839  16,336  
Materials and Supplies, average cost825
 914
Materials and Supplies, average cost619  619  
Prepaid Taxes38,326
 16,428
Prepaid Taxes19,547  28,772  
Derivatives - Energy Related Assets7,327
 5,434
Derivatives - Energy Related Assets16,904  5,464  
Other Prepayments and Current Assets12,670
 13,853
Other Prepayments and Current Assets25,074  11,280  
   
Total Current Assets196,527
 149,799
Total Current Assets197,918  198,097  
   
Regulatory and Other Noncurrent Assets:   Regulatory and Other Noncurrent Assets:
Regulatory Assets469,224
 410,746
Regulatory Assets496,177  492,365  
Long-Term Receivables25,851
 25,758
Long-Term Receivables30,958  25,531  
Derivatives - Energy Related Assets5
 373
Derivatives - Energy Related Assets5  15  
Other17,372
 12,303
Other23,322  17,491  
  

Total Regulatory and Other Noncurrent Assets512,452
 449,180
Total Regulatory and Other Noncurrent Assets550,462  535,402  
   
Total Assets$2,865,974
 $2,551,923
Total Assets$3,348,555  $3,118,236  
 
The accompanying notes are an integral part of the financial statements.


SOUTH JERSEY GAS COMPANY
CONDENSED BALANCE SHEETS (UNAUDITED)
(In Thousands, except per share amounts)

76

December 31, 2017 December 31, 2016December 31, 2019December 31, 2018
Capitalization and Liabilities   Capitalization and Liabilities
Equity:   Equity:
Common Stock, Par Value $2.50 per share:   Common Stock, Par Value $2.50 per share:
Authorized - 4,000,000 shares    Authorized - 4,000,000 shares
Outstanding - 2,339,139 shares$5,848
 $5,848
 Outstanding - 2,339,139 shares$5,848  $5,848  
Other Paid-In Capital and Premium on Common Stock355,744
 315,827
Other Paid-In Capital and Premium on Common Stock355,744  355,744  
Accumulated Other Comprehensive Loss(25,997) (14,934)Accumulated Other Comprehensive Loss(27,875) (22,357) 
Retained Earnings585,838
 533,159
Retained Earnings756,181  668,787  
   
Total Equity921,433
 839,900
Total Equity1,089,898  1,008,022  
   
Long-Term Debt758,052
 423,177
Long-Term Debt547,161  874,507  
   
Total Capitalization1,679,485
 1,263,077
Total Capitalization1,637,059  1,882,529  
   
Current Liabilities:   Current Liabilities:
Notes Payable52,000
 104,300
Notes Payable171,300  107,500  
Current Portion of Long-Term Debt63,809
 215,909
Current Portion of Long-Term Debt417,909  18,909  
Accounts Payable - Commodity43,341
 23,815
Accounts Payable - Commodity17,361  48,490  
Accounts Payable - Other41,365
 45,370
Accounts Payable - Other60,797  52,966  
Accounts Payable - Related Parties17,029
 11,216
Accounts Payable - Related Parties9,752  12,563  
Derivatives - Energy Related Liabilities9,270
 1,372
Derivatives - Energy Related Liabilities14,671  2,146  
Derivatives - Other Current389
 386
Derivatives - Other Current488  343  
Customer Deposits and Credit Balances41,656
 45,816
Customer Deposits and Credit Balances22,430  23,862  
Environmental Remediation Costs66,040
 45,018
Environmental Remediation Costs29,569  33,022  
Taxes Accrued1,760
 855
Taxes Accrued1,907  1,891  
Pension Benefits2,353
 2,428
Pension Benefits3,693  3,597  
Interest Accrued7,615
 5,369
Interest Accrued6,789  7,134  
Other Current Liabilities7,027
 8,011
Other Current Liabilities12,489  9,444  
   
Total Current Liabilities353,654
 509,865
Total Current Liabilities769,155  321,867  
   
Regulatory and Other Noncurrent Liabilities: 
  
Regulatory and Other Noncurrent Liabilities:  
Regulatory Liabilities287,105
 49,121
Regulatory Liabilities274,482  286,539  
Deferred Income Taxes - Net280,746
 469,408
Deferred Income Taxes - Net357,637  325,886  
Environmental Remediation Costs105,656
 108,029
Environmental Remediation Costs101,693  115,049  
Asset Retirement Obligations58,714
 58,674
Asset Retirement Obligations96,509  79,890  
Pension and Other Postretirement Benefits88,871
 81,800
Pension and Other Postretirement Benefits99,981  96,053  
Derivatives - Energy Related Liabilities170
 —
Derivatives - Energy Related Liabilities95  43  
Derivatives - Other Noncurrent6,639
 6,979
Derivatives - Other Noncurrent7,368  5,524  
Other4,934
 4,970
Other4,576  4,856  
   
Total Regulatory and Other Noncurrent Liabilities832,835
 778,981
Total Regulatory and Other Noncurrent Liabilities942,341  913,840  
   
Commitments and Contingencies (Note 15)   Commitments and Contingencies (Note 15)
   
Total Capitalization and Liabilities$2,865,974
 $2,551,923
Total Capitalization and Liabilities$3,348,555  $3,118,236  
 
The accompanying notes are an integral part of the unaudited condensed financial statements.


77

SOUTH JERSEY GAS COMPANY
STATEMENTS OF CHANGES IN COMMON EQUITY AND COMPREHENSIVE INCOME
(In Thousands)


   Common Stock  Other Paid-In Capital and Premium on Common Stock  Accumulated Other Comprehensive Loss  Retained Earnings  Total  
Balance at January 1, 2017  5,848  315,827  (14,934) 533,159  839,900  
Net Income  —  —  —  72,557  72,557  
Other Comprehensive Loss, Net of Tax  —  —  (11,063) —  (11,063) 
Cash Dividends Declared – Common Stock ($8.55 per share) —  —  —  (20,000) (20,000) 
Additional Investment by Shareholder  —  40,000  —  —  40,000  
Excess Tax Benefit - See Note 1  —  —  —  122  122  
Tax Deficiency from Restricted Stock Plan  —  (83) —  —  (83) 
Balance at December 31, 2017  5,848  355,744  (25,997) 585,838  921,433  
Net Income  —  —  —  82,949  82,949  
Other Comprehensive Loss, Net of Tax  —  —  3,640  —  3,640  
Balance at December 31, 2018  $5,848  $355,744  $(22,357) $668,787  $1,008,022  
Net Income  —  —  —  87,394  $87,394  
Other Comprehensive Loss, Net of Tax  —  —  (5,518) —  $(5,518) 
Balance at December 31, 2019  $5,848  $355,744  $(27,875) $756,181  $1,089,898  
 Common Stock Other Paid-In Capital and Premium on Common Stock Accumulated Other Comprehensive Loss Retained Earnings Total
Balance at January 1, 2015$5,848
 $250,899
 $(14,479) $438,300
 680,568
Net Income

 

 

 $66,578
 66,578
Other Comprehensive Gain, Net of Tax

 

 1,617
 

 1,617
Cash Dividends Declared – Common Stock
 
 
 (40,764) (40,764)
Additional Investment by Shareholder
 —
 
 
 —
Tax Deficiency from Restricted Stock Plan
 (72) 
 
 (72)
          
Balance at December 31, 20155,848
 250,827
 (12,862) 464,114
 707,927
Net Income      69,045
 69,045
Other Comprehensive Loss, Net of Tax    (2,072)   (2,072)
Cash Dividends Declared – Common Stock      —
 —
Additional Investment by Shareholder
 65,000
 
 
 65,000
Tax Deficiency from Restricted Stock Plan  —
     —
          
Balance at December 31, 20165,848
 315,827
 (14,934) 533,159
 839,900
Net Income
     72,557
 72,557
Other Comprehensive Loss, Net of Tax    (11,063) 
 (11,063)
Cash Dividends Declared – Common Stock  
   (20,000) (20,000)
Additional Investment by Shareholder
 40,000
 
 
 40,000
Excess tax benefit - See Footnote 1      122
 122
Tax Deficiency from Restricted Stock Plan  (83)   
 (83)
          
Balance at December 31, 2017$5,848
 $355,744
 $(25,997) $585,838
 $921,433




The accompanying notes are an integral part of the financial statements.


Disclosure of Changes in Accumulated Other Comprehensive LossAOCL Balances (a)
(In Thousands)
 Postretirement Liability Adjustment (A)Unrealized Gain (Loss) on Derivatives (B)Accumulated Other Comprehensive Income (Loss)
Balance at January 1, 2017$(14,417) $(517) $(14,934) 
Changes During Year(11,090) 27  (11,063) 
Balance at December 31, 2017(25,507) (490) (25,997) 
Changes During Year3,606  34  3,640  
Balance at December 31, 2018(21,901) (456) (22,357) 
Changes During Year(5,553) 35  (5,518) 
Balance at December 31, 2019$(27,454) $(421) $(27,875) 
 Postretirement Liability Adjustment (A) Unrealized Gain (Loss) on Available-for-Sale Securities (B) Unrealized Gain (Loss) on Derivatives (B) Accumulated Other Comprehensive Income (Loss)
Balance at January 1, 2015$(13,837) $(75) $(567) $(14,479)
Changes During Year1,617
 (23) 23
 1,617
Balance at December 31, 2015(12,220) (98) (544) (12,862)
Changes During Year(2,197) 98
 27
 (2,072)
Balance at December 31, 2016(14,417) —
 (517) (14,934)
Changes During Year(11,090) —
 27
 (11,063)
Balance at December 31, 2017$(25,507) $—
 $(490) $(25,997)


(A) Determined using a combined average statutoryThese amounts are net of tax rate of 27%$2,241, $(1,354) and $4,164 for the years ended December 31, 2019, 2018 and 2017, and 40% for 2016 and 2015.respectively.
(B) Determined using a combined average statutoryThese amounts are net of tax rate of 39%$(11), $(12) and $(19) for the years ended December 31, 2019, 2018 and 2017, and 40% for 2016 and 2015.respectively.



The accompanying notes are an integral part of the financial statements.



78

Notes to Consolidated Financial Statements


1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

GENERAL - South Jersey Industries, Inc. (SJI or the Company) currentlySJI provides a variety of energy-related products and services primarily through the following wholly-owned subsidiaries:

▪South Jersey Gas Company (SJG) is a regulated natural gas utility. SJG distributes natural gas in the seven southernmost counties of New Jersey.

▪
South Jersey Energy Company (SJE) acquires and markets natural gas and electricity to retail end users and provides total energy management services to commercial, industrial and residential customers.

▪
South Jersey Resources Group, LLC (SJRG) markets natural gas storage, commodity and transportation assets along with fuel management services on a wholesale basis in the mid-Atlantic, Appalachian and southern states.

▪
South Jersey Exploration, LLC (SJEX) owns oil, gas and mineral rights in the Marcellus Shale region of Pennsylvania.

▪
Marina Energy, LLC (Marina) develops and operates on-site energy-related projects. It currently operates projects in New Jersey, Maryland, Massachusetts and Vermont. The significant wholly-owned subsidiaries of Marina include:


▪SJIU is a holding company that owns SJG, ETG and ELK.

•SJG is a regulated natural gas utility which distributes natural gas in the 7 southernmost counties of New Jersey.
•ETG is a regulated natural gas utility which distributes natural gas in 7 counties in northern and central New Jersey.
•ELK is a regulated natural gas utility which distributes natural gas in northern Maryland. In December 2019, the Company announced it had entered into an agreement to sell ELK to a third-party buyer, pending MPSC approval (see "Agreement to Sell ELK" below).

▪SJE acquires and markets electricity to retail end users. In November 2018, the Company sold SJE's retail gas business.

▪SJRG markets natural gas storage, commodity and transportation assets along with fuel management services on a wholesale basis in the mid-Atlantic, Appalachian and southern states.

▪SJEX owns oil, gas and mineral rights in the Marcellus Shale region of Pennsylvania.

▪Marina develops and operates on-site energy-related projects. Included in Marina is MTF, which, in February 2020, was sold to a third party buyer (see "Agreement to Sell MTF & ACB" below). Also included in Marina are three solar projects which are held for sale. The significant wholly-owned subsidiaries of Marina include:

•ACB, Energy Partners, LLC (ACB)which owns and operates a natural gas fueled combined heating, cooling and power facility located in Atlantic City, New Jersey.
ACB is included in the sale to a third party buyer (see "Agreement to Sell MTF & ACB" below).


AC Landfill Energy, LLC (ACLE), BC Landfill Energy, LLC (BCLE), SC Landfill Energy, LLC (SCLE)•ACLE, BCLE, SCLE and SX Landfill Energy, LLC (SXLE) ownSXLE, which owns and operateoperates landfill gas-to-energy production facilities in Atlantic, Burlington, Salem and Sussex Counties in New Jersey.


MCS Energy Partners, LLC (MCS), NBS Energy Partners, LLC (NBS) and SBS Energy Partners, LLC (SBS) own and operate solar-generation sites located in New Jersey.
▪SJESP receives commissions on service contracts from a third party.

▪
South Jersey Energy Service Plus, LLC (SJESP) serviced residential and small commercial HVAC systems, installed small commercial HVAC systems, provided plumbing services and serviced appliances under warranty via a subcontractor arrangement as well as on a time and materials basis. On September 1, 2017, SJESP sold certain assets of its residential and small commercial HVAC and plumbing business to a third party. SJESP will receive commissions paid on service contracts from the third party on a go forward basis. This transaction did not have a material impact on the consolidated financial statements.


SJI •Midstream LLC (Midstream) invests in infrastructure and other midstream projects, including PennEast. See Note 3.

•SJEI provides energy procurement and cost reduction services. AEP, an aggregator, broker and consultant in the retail energy markets, is a current project to build an approximately 118-mile natural gas pipeline in Pennsylvania and New Jersey.

In October 2017, SJI announced that it had entered into agreements to acquire the assets of Elizabethtown Gas and Elkton Gas from Pivotal Utility Holdings, Inc., awholly-owned subsidiary of Southern Company Gas. SJI is acquiring the assets of both companies for total consideration of $1.7 billion. The transaction is expected to close in mid-2018, and is subject to approvals by the New Jersey Board of Public Utilities (BPU) and the Maryland Public Service Commission (PSC), with limited approvals also required from the Federal Energy Regulatory Commission (FERC) and the Federal Communications Commission (FCC), as well as certain anti-trust filings and approvals.

In connection with the acquisition, SJI has incurred total fees of $27.4 million during the year ended December 31, 2017. Of these fees, $14.5 million were related to consulting and legal expenses and recorded as Operating Expenses in the statements of consolidated income for the year ended December 31, 2017. The remaining $12.9 million relates to a 364-day, $2.6 billion senior unsecured bridge facility (the “Bridge Facility”), which was entered into in the fourth quarter of 2017 (see Note 14). Debt issuance costs associated with the Facility totaled $10.4 million and are being amortized over the termSJEI after completion of the Facility, with $2.6 million amortized to interest expenseAEP acquisition in 2017. Also incurred is $2.5 million of ticking fees which are also recorded as interest expense for the year ended December 31, 2017. The interest expenses noted above are recorded in Interest Charges in the statements of consolidated income. All of the above costs are included in the Corporate & Services segment.August 2019.



BASIS OF PRESENTATION - TheSJI's consolidated financial statements include the accounts of SJI, its direct and indirect wholly-owned subsidiaries (including SJG) and subsidiaries in which SJI has a controlling interest. SJI eliminates allAll significant intercompany accounts and transactions.transactions have been eliminated in consolidation. Beginning as of the date of their acquisition, July 1, 2018, SJI also reports on a consolidated basis the combined operations of ETG and ELK. In addition, SJI is reporting on a consolidated basis the operations of AEP as of the date of its acquisition, August 31, 2019. In management's opinion, the consolidated financial statements of SJI and SJG reflect all normal and recurring adjustments needed to fairly present SJI'stheir respective financial position,positions, operating results and cash flows at the dates and for the periods presented.  


Certain reclassificationsAs of December 31, 2019 and 2018, SJI had assets and liabilities held for sale on the consolidated balance sheets as a result of the agreements to sell that are discussed below. Unless otherwise noted, the disclosures herein related to specific asset and liability balances at December 31, 2019 and 2018 exclude assets and liabilities held for sale. See "Assets and Liabilities Held for Sale" below for additional information including major classes of assets and liabilities classified as held for sale for both periods presented.


79

ACQUISITIONS - On July 1, 2018, SJI, through its wholly-owned subsidiary SJIU, acquired the assets of ETG and ELK from Pivotal Utility Holdings, Inc., a subsidiary of Southern Company Gas (collectively, the "Acquisition"), for total consideration of $1.72 billion after the settlement of working capital. On August 31, 2019, SJI, through its wholly-owned subsidiary SJEI, completed its acquisition of AEP for approximately $4.0 million in total consideration. See Note 20.

AGREEMENT TO SELL SOLAR ASSETS - On June 27, 2018, the Company, through its wholly-owned subsidiary, Marina, entered into a series of agreements whereby Marina agreed to sell its portfolio of solar energy assets (the “Transaction”) to a third-party buyer. As part of the Transaction, Marina agreed to sell its distributed solar energy projects across New Jersey, Maryland, Massachusetts and Vermont (the “Projects”), along with the assets comprising the Projects. Also in connection with the Transaction, Marina is leasing back from the buyer certain of the Projects that have been madenot yet passed the fifth anniversary of their placed-in-service dates for U.S. federal income tax purposes. The leaseback will run from the date each such project was acquired by the buyer until the later of the first anniversary of the applicable acquisition date and the fifth anniversary of the applicable placed-in-service date of the project.

In July 2018, as part of the Transaction, Marina received a cash payment of $62.5 million for the sale of certain SRECs.

During the fourth quarter of 2018, the Company closed on the majority of these Projects, including the wholly-owned subsidiaries MCS, NBS and SBS, with each project sold having met all conditions to SJI'ssatisfy closing. Total consideration received in the fourth quarter 2018 related to these sales was $228.1 million.

During 2019, 7 Projects were sold for total consideration of $24.3 million. The Company has 3 projects that are not part of the Transaction but are expected to be sold in 2020. These unsold assets are recorded as Assets Held For Sale on the consolidated balance sheets as of December 31, 2019, where they will remain until they are transferred to a buyer.

The Company also received $2.5 million in 2019 for completion of remaining performance obligations from a separate sale of a solar project that occurred in 2018.

In total, the Company recorded pre-tax gains on the sale of these projects of $3.1 million and SJG's prior period consolidated statements$17.6 million in 2019 and 2018, respectively, in Net Gain on Sales of cash flows to conform to the current period presentation. Restricted cash is now combined with cash and cash equivalents when reconciling the beginning and end of period balancesAssets on the consolidated statements of cash flowsincome, with these gains pertaining to those projects that were not impaired as discussed under "Impairment of SJI, as well asLong-Lived Assets" below.

AGREEMENT TO SELL MTF & ACB - In December 2019, the statementsCompany announced it had entered into an agreement to sell MTF and ACB to a third-party buyer for an initial sales price of $100.0 million, which includes working capital. This sale closed on February 18, 2020 for a final sales price of $97.0 million, with the initial sales price being reduced by the amount of cash flows generated by MTF and ACB from October 1, 2019 through the date of closing (see Note 22). These unsold assets and liabilities are recorded as Assets Held for Sale and Liabilities Held For Sale, respectively, on the consolidated balance sheets as of December 31, 2019. See "Impairment of Long-Lived Assets" below for charges taken on this agreement.

AGREEMENT TO SELL ELK - In December 2019, the Company announced it had entered into an agreement to sell ELK to a third-party buyer for approximately $15.0 million, less any indebtedness at the time of closing, and pending MPSC approval. This transaction is expected to close in the middle of 2020. The assets and liabilities for ELK are recorded as Assets Held for Sale and Liabilities Held for Sale, respectively, on the consolidated balance sheets as of December 31, 2019.


80

ASSETS AND LIABILITIES HELD FOR SALE - As of December 31, 2019, SJI has recorded assets and liabilities held for sale as a result of the agreements to sell MTF/ACB and ELK discussed above. As of both December 31, 2019 and 2018, assets held for sale also relate to the solar projects discussed under “Agreement to Sell Solar Assets” above. As a result, SJI has recorded the following in Assets Held for Sale and Liabilities Held for Sale on the consolidated balance sheets as of December 31, 2019 and 2018 (in thousands):

20192018
Assets Held for Sale:
   Current Assets$5,365  $—  
   Net Utility Plant18,692  —  
   Net Nonutility Property, Plant & Equipment110,400  59,588  
   Goodwill59  —  
   Regulatory Assets415  —  
   Other Noncurrent Assets8,509  —  
      Total Assets Held for Sale$143,440  $59,588  
Liabilities Held for Sale:
   Current Liabilities$916  $—  
   Asset Retirement Obligations2,515  —  
   Regulatory Liabilities2,583  —  
   Other Noncurrent Liabilities29  —  
      Total Liabilities Held for Sale$6,043  $—  

SJG to conform to ASU 2016-18,does 0t have any assets or liabilities recorded as held for sale as of December 31, 2019 or 2018.

SALE OF RETAIL GAS OPERATIONS OF SJE - On November 30, 2018, SJI sold the retail gas business of SJE for total consideration of $15.0 million. As a result of this agreement, SJE no longer acquires, transports or markets natural gas for retail markets. The Company recognized a pre-tax loss on this sale of $2.2 million, which is described below under "New Accounting Pronouncements." This combinationrecorded in Net Gain on Sales of restricted cash and cash and cash equivalents caused Cash Flows from Investing Activities for both SJI and SJG to be adjusted in order to add restricted cash obtained through an acquisition (SJI only), as well as to remove items relating to capital expenditures and proceeds from restricted investments (SJI only), as well as the sale of restricted investments in a margin account and from escrowed loan proceeds (SJI and SJG).

Certain reclassifications have been made to SJI's prior period consolidated statements of cash flows to conform to the current period presentation. Cash paid by an employer when directly withholding shares for tax-withholding purposes is now classified as a financing activity inAssets on the consolidated statements of income.

IMPAIRMENT OF LONG-LIVED ASSETS - Long-lived assets that are held and used are reviewed for impairment whenever events or changes in circumstances indicate carrying values may not be recoverable. Such reviews are performed in accordance with FASB ASC 350, Intangibles - Goodwill and Other, and ASC 360, Property, Plant and Equipment. An impairment loss is indicated if the total future estimated undiscounted cash flows expected from an asset are less than its carrying value. An impairment charge is measured by the difference between an asset's carrying amount and fair value with the difference recorded within Impairment Charges on the consolidated statements of income. Fair values can be determined based on agreements to conformsell assets as well as by a variety of valuation methods, including third-party appraisals, sales prices of similar assets, and present value techniques.

In 2019, total impairment charges of $10.8 million (pre-tax) were recorded, $2.4 million of which were related to ASU 2016-09,the expected purchase price of 2 of the unsold solar sites discussed in "Agreement to Sell Solar Assets" being less than their carrying value. The other $8.4 million were impairments of goodwill and identifiable intangible assets, which iswere the result of the purchase price discussed in "Agreement to Sell MTF & ACB" being less than its carrying value (see Note 21).

In 2018, the Transaction described above under "Agreement to Sell Solar Assets" triggered an indicator of impairment as the purchase price was less than the carrying amount for several of the assets sold and, as a result, several assets were considered to be impaired. The Company measured the impairment loss as the difference between the carrying amount of the respective assets and the fair value, which was determined using the purchase price and the expected cash flows from the assets, including potential price reductions resulting from the timing needed to satisfy all required closing conditions. As a result, the Company recorded an impairment charge of $99.2 million (pre-tax) for the year ended December 31, 2018, to reduce the carrying amount of several assets to their fair market value.


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In 2017, SJI had reason to believe that, due to a significant decline in the market prices of Maryland SRECs, combined with increase of operating expenses, the full carrying value of SJI's Maryland solar facilities may not be recoverable. As a result, SJI performed an impairment test on the respective assets which led to an impairment charge of $43.9 million (pre-tax) for the year ended December 31, 2017. Also, during the fourth quarter of 2017, as the Company updated its estimated future cash flows for the rest of its solar portfolio, the Company determined that the expected future undiscounted cash flows for certain individual solar facilities were below under "New Accounting Pronouncements." This caused SJI's prior period Cash Flows Providedtheir carrying value and the assets were considered impaired. As a result, SJI recorded an additional impairment charge of $27.4 million (pre-tax) in 2017. The fair values of the impaired solar facilities were determined using an income approach by Operating Activities (Other Assetsapplying a discounted cash flow methodology to the future estimated cash flows, which were Level 3 fair value measurements. The key inputs to the methodology were forecasted SREC and Liabilities)electric revenues, operating expenses, salvage values, and discount rates.

Also in the fourth quarter of 2017, SJI observed its LFGTE assets were incurring continuing cash flow losses specifically due to increase by $0.4larger than expected decreases in electric generation and increasing operating expenses, and as a result had reason to believe the carrying value of these assets may no longer be recoverable. As a result, SJI performed an impairment test on the respective assets which led to an impairment charge of $16.5 million (pre-tax) for the year ended December 31, 2017. The fair values of the LFGTE assets were determined using a combination of market and cost approaches, which considers similar market transactions that are specific to the LFGTE assets. The cost and market approaches used were deemed Level 3 fair value measurements. In the fourth quarter of 2018, SJI observed its LFGTE assets were continuing to incur cash flow losses for similar reasons, and as a result had reason to believe the remaining carrying value of these assets may no longer be recoverable. As a result, the remaining carrying value of all such assets was written off via an impairment charge of $6.1 million (pre-tax) during the fourth quarter of 2018.

For the years ended December 31, 2019, 2018 and 2017, SJI had total long-lived asset impairment charges (pre-tax) of $10.8 million, $105.3 million and $0.3$87.8 million, respectively. These impairment charges are recorded within Impairment Charges on the consolidated statements of income and are included within the On-Site Energy Production segment. NaN impairment charges were recorded at SJG for 2016the years ended December 31, 2019, 2018 and 2015, respectively, and Net Cash Flows from Financing Activities (Net Settlement of Restricted Stock) to decrease by the same amount. Also, excess tax benefits from restricted stock are now classified along with other income tax cash flows as an operating activity per the new ASU. This caused $0.4 million and $0.1 million to be reclassed out of SJI's and SJG's, respectively, 2015 Cash Flows Provided by Financing Activities (Other) into Cash Flows Provided by Operating Activities (Other Assets and Liabilities).2017.

Certain reclassifications have been made to SJI's prior period segments disclosures to conform to the current period presentation. The activities of SJI Midstream, which were presented in the Corporate & Services segment in 2015 and 2016, are now separated into the Midstream segment in 2017. This caused prior period adjustments to Property Additions and Identifiable Assets in Note 8.

Certain reclassifications have been made to SJG's related party transactions disclosures to conform to the current period presentation. The operating revenues of "Marina" and "Other" were adjusted for proper presentation of the SJI wholly-owned subsidiaries (Marina) and the SJI affiliates (Other) in Note 3.


EQUITY INVESTMENTS - Marketable equity securities that are purchased as long-term investments are classified as Available-for-Sale Securities and carried at their fair value on the consolidated balance sheets. Any unrealized gains or losses are included in Accumulated Other Comprehensive Loss.AOCL. SJI, through wholly owned subsidiaries, holds significant variable interests in several companies but is not the primary beneficiary.  Consequently, these investments are accounted for under the equity method. In the event that losses and/or distributions from these equity method investments exceed the carrying value, and the Company is obligated to provide additional financial support, the excess will be recorded as either a current or non-current liability on the consolidated balance sheets. We includeSJI includes the operations of these affiliated companies on a pre-tax basis in the statements of consolidated income under Equity in Earnings (Loss) of Affiliated Companies (see Note 3).  An impairment loss is recorded when there is clear evidence that a decline in value is other than temporary. In 2015, the Company recorded a $7.7 million (net of tax) non-cash charge to earnings due to the reduction in the carrying value of an investment in a project entered into by Energenic (see Note 7). No impairment losses were recorded on equity investments during 20172019, 2018 or 2016.2017. SJG does not hold any equity investments.


ESTIMATES AND ASSUMPTIONS - We prepare ourThe consolidated financial statements were prepared to conform with accounting principles generally accepted in the United States of America (GAAP).GAAP. Management makes estimates and assumptions that affect the amounts reported in the consolidated financial statements and related disclosures. Therefore, actual results could differ from those estimates. Significant estimates include amounts related to regulatory accounting, energy derivatives, environmental remediation costs, pension and other postretirement benefit costs, revenue recognition, goodwill and revenue recognition.evaluation of equity method investments for other-than-temporary impairment.
 
REGULATION - SJG and ETG are subject to the rules and regulations of the BPU, while ELK is subject to the rules and regulations of the New Jersey Board of Public Utilities (BPU).MPSC. See Note 10 for a detailed discussion of SJG's, ETG's and ELK's rate structure and regulatory actions. SJG, maintains itsETG and ELK maintain their accounts according to the BPU's and MPSC's, prescribed Uniform System of Accounts. SJG, followsETG and ELK follow the accounting for regulated enterprises prescribed by Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC)FASB ASC Topic 980 -”Regulated Operations.”  In general, Topic 980 allows for the deferral of certain costs (regulatory assets) and creation of certain obligations (regulatory liabilities) when it is probable that such items will be recovered from or refunded to customers in future periods. See Note 11 for a detailed discussion of regulatory assets and liabilities.

 
OPERATING REVENUES - Gas and electric revenues are recognized in the period the commodity is delivered to customers. For SJG and SJE retail customers (including SJG) that are not billed at the end of the month, we record an estimate to recognize unbilled revenues for gas and electricity delivered from the date of the last meter reading to the end of the month. SJRG's gas revenues are recognized in the period the commodity is delivered. Realized and unrealized gains and losses on energy-related derivative instruments are also recognized in operating revenues for SJRG. See further discussion under Derivative Instruments. SJRG presents revenues and expenses related to its energy trading activities on a net basis in operating revenues. This net presentation
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has no effect on operating income or net income. We recognizeThe Company recognizes revenues on commissions received related to SJESP appliance service contracts from a third party on a monthly basis as these commissions are earned. Marina recognizes revenue on a monthly basis as services are provided, as lease income is earned, and for on-site energy production that is delivered to its customers.

REVENUE-BASED TAXES — SJG collects certain revenue-based energy taxes from its customers. Such taxes include New Jersey State Sales Tax and Public Utilities Assessment (PUA). State sales tax is recorded as a liability when billed to customers and is not included in revenue or operating expenses. The PUA is included in both utility revenue and energy and other taxes and totaled $1.2 million, $1.1 million, and $1.2 million in 2017, 2016 and 2015, respectively.


ACCOUNTS RECEIVABLE AND PROVISION FOR UNCOLLECTIBLE ACCOUNTS - Accounts receivable are carried at the amount owed by customers. A provision for uncollectible accounts is established based on our collection experience and an assessment of the collectibility of specific accounts.


NATURAL GAS IN STORAGE – Natural Gas in Storage is reflected at average cost on the consolidated balance sheets, and represents natural gas that will be utilized in the ordinary course of business.
 
ASSET RETIREMENT OBLIGATIONS - The amounts included under Asset Retirement Obligations (ARO)ARO are primarily related to the legal obligations SJI has to cut and cap gas distribution pipelines when taking those pipelines out of service in future years. These liabilities are generally recognized upon the acquisition or construction of the asset.asset, or when management has adequate information in order to make an estimate of the obligation. The related asset retirement cost is capitalized concurrently by increasing the carrying amount of the related asset by the same amount as the liability. Changes in the liability are recorded for the passage of time (accretion) or for revisions to cash flows originally estimated to settle the ARO.
 
ARO activity was as follows (in thousands):
 
SJI (includes SJG and all other consolidated subsidiaries):20192018
AROs as of January 1,$80,163  $59,497  
Accretion9,263  1,909  
Additions (A)175,082  297  
Settlements(14,437) (3,402) 
Revisions in Estimated Cash Flows (B)13,879  21,862  
ARO's as of December 31,$263,950  $80,163  
SJG:20192018
AROs as of January 1,$79,890  $58,714  
Accretion3,741  1,880  
Additions2,553  297  
Settlements(3,554) (2,863) 
Revisions in Estimated Cash Flows (B)13,879  21,862  
ARO's as of December 31,$96,509  $79,890  
  2017 2016
SJI (includes SJG and all other consolidated subsidiaries): 
 
AROs as of January 1, $59,427
 $57,943
Accretion 1,955
 1,937
Additions 1,008
 1,098
Settlements (2,893) (1,551)
ARO's as of December 31, $59,497
 $59,427
     
  2017 2016
SJG:    
AROs as of January 1, $58,674
 $57,219
Accretion 1,925
 1,908
Additions 1,008
 1,098
Settlements (2,893) (1,551)
ARO's as of December 31, $58,714
 $58,674
(A) The additions in 2019 are related to the recording of ETG's ARO liability as part of purchase accounting (see Note 20).

(B) The revision in estimated cash flows reflects an increase in the retirement costs and inflation rate, partially offset by a decrease to the discount rate, to settle the ARO liability. Corresponding entries were made to Regulatory Assets and Utility Plant, thus having no impact on earnings.

PROPERTY, PLANT AND EQUIPMENT - For regulatory purposes, utility plant is stated at original cost, which may be different than SJG's costcosts if the assets were acquired from another regulated entity. Nonutility property, plant and equipment is stated at cost. The cost of adding, replacing and renewing property is charged to the appropriate plant account.




SJG
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Utility Plant balances and SJI Nonutility Property and Equipment as of December 31, 20172019 and 20162018 were comprised of the following (in thousands):
SJI (includes SJG and all other consolidated subsidiaries):SJG
2019201820192018
Utility Plant
   Production Plant$1,334  $1,281  $25  $296  
   Storage Plant84,611  92,769  61,936  61,996  
   Transmission Plant332,049  326,906  305,459  306,654  
   Distribution Plant3,973,466  3,466,101  2,441,342  2,212,831  
   General Plant310,785  303,219  238,379  241,095  
   Other Plant1,955  1,964  1,855  1,855  
       Utility Plant In Service4,704,200  4,192,240  3,048,996  2,824,727  
Construction Work In Progress201,150  148,873  105,740  82,475  
       Total Utility Plant$4,905,350  $4,341,113  $3,154,736  $2,907,202  
Nonutility Property and Equipment
   Solar Assets (A)$—  $—  $—  $—  
   Cogeneration Assets (B)—  126,228  —  —  
   Other Assets25,991  26,004  —  —  
Total Nonutility Property and Equipment$25,991  $152,232  $—  $—  
  2017 2016
Utility Plant    
   Production Plant $296
 $296
   Storage Plant 61,909
 60,661
   Transmission Plant 258,598
 257,169
   Distribution Plant 2,044,421
 1,871,703
   General Plant 175,599
 169,464
   Other Plant 1,855
 1,855
       Utility Plant In Service 2,542,678
 2,361,148
Construction Work In Progress 109,566
 62,986
       Total Utility Plant $2,652,244
 $2,424,134
     
Nonutility Property and Equipment    
   Solar Assets $582,379
 $652,683
   Cogeneration Assets 125,614
 124,172
   Other Assets 33,034
 45,087
Total Nonutility Property and Equipment $741,027
 $821,942
(A) All remaining solar assets are recorded as Assets Held for Sale in the consolidated balance sheets as of December 31, 2019 and 2018.

(B) All cogeneration assets are recorded as Assets Held for Sale in the consolidated balance sheets as of December 31, 2019.

DEPRECIATION - We depreciate utility plant on a straight-line basis over the estimated remaining lives of the various property classes. These estimates are periodically reviewed and adjusted as required after BPUBPU/MPSC approval. The composite annual rate for all SJG depreciable utility property was approximately 2.2% in each of 2017, 20162019, 2.3% in 2018, and 2015.2.2% in 2017. The composite rate for all ETG depreciable utility property was approximately 2.4% in 2019 and 2.3% in 2018. The actual composite rate may differ from the approved rate as the asset mix changes over time. Except for retirements outside of the normal course of business, accumulated depreciation is charged with the cost of depreciable utility property retired, less salvage. Nonutility property depreciation is computed on a straight-line basis over the estimated useful lives of the property, ranging up to 5015 years. Gain or loss on the disposition of nonutility property is recognized in operating income. As of December 31, 2017, total

Total accumulated depreciation for utility and nonutility property and equipment was $498.2$844.0 million and $194.9$13.8 million, respectively, as of December 31, 2019, and $787.2 million and $52.6 million, respectively, as of December 31, 2018. The decrease in nonutility accumulated depreciation is due to the assets of MTF and ACB being classified as held for sale. As of December 31, 2019 and 2018, total accumulated depreciation for SJG utility property and equipment was $558.6 million and $523.7 million, respectively.
 
DEBT ISSUANCE COSTS - Debt issuance costs are capitalized and amortized as interest expense on a basis which approximates the effective interest method over the term of the related debt. Debt issuance costs are presented as a direct deduction from the carrying amount of the related debt. See Note 14 for the total unamortized debt issuance costs that are recorded as a reduction to long-term debt on the consolidated balance sheets of SJI and SJG.


CAPITALIZED INTEREST - SJG capitalizesThe Utilities capitalize interest on construction at the rate of return on the rate base utilized by the BPUBPU/MPSC to set rates in SJG'stheir last base rate proceeding.proceedings. For SJG's accelerated infrastructure programs and ETG's infrastructure investment programs, SJG capitalizesand ETG capitalize interest on construction at a rate prescribed by the programs (see Note 10), and amounts are included in Utility Plant on the consolidated balance sheets. Marina and Midstream capitalizecapitalizes interest on capital projects in progress based on the actual cost of borrowed funds, and amounts are included in Nonutility Property and Equipment on the consolidated balance sheets. Interest Charges are presented net of capitalized interest on the statements of consolidated income.  The amount of interest capitalized by SJI (including SJG) for the years ended December 31, 2019, 2018
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and 2017 2016 and 2015 was $2.0$6.0 million, $6.6$2.5 million and $4.9$2.0 million, respectively. The amount of interest capitalized by SJG for the years ended December 31, 2019, 2018 and 2017 2016was $4.5 million, $2.2 million and 2015 was $1.6 million, $5.3 millionrespectively.

CAPITALIZED SOFTWARE COSTS - For implementation costs incurred in a cloud computing arrangement that is a service contract, SJI and $2.8 million, respectively.
IMPAIRMENT OF LONG-LIVED ASSETS - Long-lived assets that are heldSJG capitalize certain costs incurred during the application-development and used are reviewed for impairment whenever events or changespost-implementation-operation stages (provided the costs result in circumstances indicate carrying values may not be recoverable. Such reviews are performedenhanced functionality to the hosted solution) in accordance with ASC 360. An impairment loss is indicated if350-40. All other costs that do not meet the total future estimated undiscounted cash flows expected from an assetcapitalization criteria per ASC 350-40 are less than its carrying value. An impairment charge is measured by the difference between an asset's carrying amount and fair value with the difference recorded within Impairment Charges on the consolidated statements of income. Fair values can be determined by a variety of valuation methods, including third-party appraisals, sales prices of similar assets, and present value techniques.


In 2017, SJI had reason to believe that, due to a significant decline in the market prices of Maryland solar renewable energy credits (SRECs), combined with an increase of operating expenses, the full carrying value of SJI’s Maryland solar facilities may not be recoverable. As a result, SJI performed an impairment test on the respective assets which led to an impairment charge of $43.9 million. Also, during the fourth quarter of 2017,expensed as the Company updated its estimated future cash flows for the rest of its solar portfolio, the Company determined that the expected future undiscounted cash flows for certain individual solar facilities were below their carrying value and the assets were considered impaired. As a result, SJI recorded an additional impairment charge of $27.4 million in 2017. The fair values of the impaired solar facilities were determined using an income approach by applying a discounted cash flow methodology to the future estimated cash flows, which were Level 3 fair value measurements. The key inputs to the methodology were forecasted SREC and electric revenues, operating expenses, salvage values, and discount rates.

Also in the fourth quarter of 2017, SJI observed its landfill gas-to-energy (LFGTE) assets were incurring continuing cash flow losses specifically due to larger than expected decreases in electric generation and increasing operating expenses, and as a result had reason to believe the carrying value of these assets may no longer be recoverable. As a result, SJI performed an impairment test on the respective assets which led to an impairment charge of $16.5 million. The fair values of the LFGTE assets were determined using a combination of market and cost approaches, which considers similar market transactions that are specific to the LFGTE assets. The cost and market approaches used are deemed Level 3 fair value measurements.

For the year ended December 31, 2017, SJI had total long-lived asset impairment charges (pre-tax) of $87.8 million. These impairment charges are recorded within Impairment Charges on the consolidated statements of income and are included within the On-Site Energy Production segment. No impairments on long-lived assets were identified at SJG for the year ended December 31, 2017. For the years ended December 31, 2016 and 2015, no impairments on long-lived assets were identified at SJI or SJG. See Note 17 for further information on Fair Value methodology.

Marina’s solar energy projects rely on returns from electricity and SRECs.  A further decrease in the value of electricity and SRECs due to market conditions and/or legislative changes may negatively impact Marina's return on its investments as well as lead to impairment of the respective assets. incurred.
 
DERIVATIVE INSTRUMENTS - SJI accounts for derivative instruments in accordance with FASB ASC Topic 815 - “Derivatives and Hedging.”  We record all derivatives, whether designated in hedging relationships or not, on the consolidated balance sheets at fair value unless the derivative contracts qualify for the normal purchase and sale exemption. In general, if the derivative is designated as a fair value hedge, we recognize the changes in the fair value of the derivative and of the hedged item attributable to the hedged risk in earnings. We currently have no fair value hedges. If the derivative is designated as a cash flow hedge, we record the effective portion of the hedge in Accumulated Other Comprehensive Loss (AOCL)AOCL and recognize it in the income statement when the hedged item affects earnings. We recognize ineffective portions of the cash flow hedges immediately in earnings. We currently have no cash flow hedges. We formally document all relationships between hedging instruments and hedged items, as well as our risk management objectives, strategies for undertaking various hedge transactions and our methods for assessing and testing correlation and hedge ineffectiveness. All hedging instruments are linked to the hedged asset, liability, firm commitment or forecasted transaction. Due to the application of regulatory accounting principles under FASB ASC Topic 980, gains and losses on derivatives related to SJG's gas purchases are recorded through the Basic Gas Supply Service (BGSS)BGSS clause.
 
Initially and on an ongoing basis, we assess whether derivatives designated as hedges are highly effective in offsetting changes in cash flows or fair values of the hedged items. We discontinue hedge accounting prospectively if we decide to discontinue the hedging relationship; determine that the anticipated transaction is no longer likely to occur; or determine that a derivative is no longer highly effective as a hedge. In the event that hedge accounting is discontinued, we will continue to carry the derivative on the balance sheet at its current fair value and recognize subsequent changes in fair value in current period earnings. Unrealized gains and losses on the discontinued hedges that were previously included in AOCL will be reclassified into earnings when the forecasted transaction occurs, or when it is probable that it will not occur. Hedge accounting has been discontinued for all remaining derivatives that were designated as hedging instruments. As a result, unrealized gains and losses on these derivatives, that were previously recorded in AOCL on the consolidated balance sheets, are being recorded into earnings over the remaining life of the derivative. In March 2017, SJI entered into a new interest rate derivative and amended the existing interest rate derivative linked to unrealized losses previously recorded in AOCL (see Note 16).


GAS EXPLORATION AND DEVELOPMENT - SJI capitalizes all costs associated with gas property acquisition, exploration and development activities under the full cost method of accounting. Capitalized costs include costs related to unproved properties, which are not amortized until proved reserves are found or it is determined that the unproved properties are impaired. All costs related to unproved properties are reviewed quarterly to determine if impairment has occurred. NoNaN impairment charges were recorded on these costs during the years ended December 31, 2017, 20162019, 2018 and 2015.2017. As of both December 31, 20172019 and 2016, $8.72018, $8.6 million and $8.8 million , respectively, related to interests in proved and unproved properties in Pennsylvania, net of amortization, is included with Nonutility Property and Equipment and Other Noncurrent Assets on the consolidated balance sheets.sheets and in the Wholesale Energy Operations segment.
 
TREASURY STOCK – SJI uses the par value method of accounting for treasury stock. As of December 31, 20172019 and 2016,2018, SJI held 216,642231,514 and 212,617233,482 shares of treasury stock, respectively. These shares are related to deferred compensation arrangements where the amounts earned are held in the stock of SJI.


AFUDC - SJI and SJG record AFUDC, which represents the estimated debt and equity costs of capital funds that are necessary to finance the construction of new facilities. While cash is not realized currently, AFUDC increases the regulated revenue requirement and is included in rate base and recovered over the service life of the asset through a higher rate base and higher depreciation.

INCOME TAXES - Deferred income taxes are provided for all significant temporary differences between the book and taxable bases of assets and liabilities in accordance with FASB ASC Topic 740 - “Income Taxes” (See Note 4). A valuation allowance is established when it is determined that it is more likely than not that a deferred tax asset will not be realized. Investment tax credits related to renewable energy facilities of Marina are recognized on the flow-through method.



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On December 22, 2017, the Tax Cuts and Jobs Act ("Tax Reform")Reform was enacted into law, which changeschanging various corporate income tax provisions within the existing Internal Revenue Code. The law became effective January 1, 2018 but iswas required to be accounted for in the period of enactment, which foras such SJI and SJG isadopted the new requirements in the fourth quarter of 2017. SeeSJI and SJG were impacted in several ways as a result of Tax Reform, see Note 4.

CASH AND CASH EQUIVALENTS - For purposes of reporting cash flows, highly liquid investments with original maturities of three months or less are considered cash equivalents.


IDENTIFIABLE INTANGIBLE ASSETSBUSINESS COMBINATIONS - The primary identifiable intangible assetsCompany applies the acquisition method to account for business combinations. The consideration transferred for an acquisition is the fair value of the assets transferred, the liabilities incurred or assumed by the acquirer and the equity interests issued by the acquirer. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The excess of the consideration transferred over the fair value of the identifiable net assets acquired is recorded as goodwill (see Note 20).

AMA - On July 1, 2018, SJRG purchased from a third party an AMA whereby SJRG manages the pipeline capacity of ETG. Total cash payment was $11.3 million. The AMA expires on March 31, 2022. Under the AMA, SJRG pays ETG an annual fee of $4.25 million, plus additional profit sharing as defined in the AMA. The amounts received by ETG will be credited to its BGSS clause and returned to its ratepayers. The total purchase price was allocated as follows (in thousands):

Natural Gas in Storage$9,685 
Intangible Asset19,200 
Profit Sharing - Other Liabilities(17,546)
   Total Consideration$11,339 

As of December 31, 2019 and 2018, the balance of the intangible asset is $11.5 million and $16.6 million, respectively, and is recorded to Other Current and Noncurrent Assets on the consolidated balance sheets of SJI, with the reduction being due to amortization. As of December 31, 2019 and 2018, the balance in the liability is $10.6 million and $17.0 million and is recorded to Regulatory Liabilities on the consolidated balance sheets of SJI, with the change resulting from profit sharing earned.

ERIP - In 2018, the Company are customer relationships. Theoffered an ERIP to non-union, non-Officer employees over the age of 55 years old with 20 or more years of service to the Company determinesas well as to Officers over the useful livesage of identifiable intangible assets after considering55 years old with 5 or more years of service to the specific factsCompany. Communication was made to these employees in the fourth quarter 2018, with acceptance made by non-union employees by December 15, 2018 and circumstancesby Officers by December 31, 2018. Total cost to the Company for the ERIP was $13.4 million, of which $8.3 million was included in Operations Expense on the consolidated statements of income as of December 31, 2018, and $5.1 million was related to each intangible asset. Considerations may include the contractual termemployees of any agreement related to the asset, the historical performance of the asset, the Company's long-term strategy for using the asset, any laws or other local regulations which could impact the useful life of the asset,SJG and other economic factors, including competition and specific market conditions. Intangible assets that are deemed to have definite lives (finite-lived intangible assets) are amortized, primarily onrecorded as a straight-line basis, over their useful lives, generally ranging from 2 to 20 years. The cost of identifiable intangible assets of $12.5 million and $15.8 million are included in Noncurrent AssetsRegulatory Asset on the consolidated balance sheets as of December 31, 20172018. These costs include severances, curtailments and 2016, respectively.special termination benefits on the Company's pension, SERP and OPEB plans. The decreasemajority of employees who accepted the ERIP retired in intangible assets2019.

CURRENT PORTION OF LONG-TERM DEBT & SHORT-TERM BORROWINGS - The Company has $467.9 million of $3.3long-term debt that is due within one year, along with $848.7 million was attributableof notes payable which includes borrowings under the commercial paper program (see Note 13). SJI expects to a $2.2 million pre-tax impairment charge specificreduce its debt and notes payable over the next twelve months using cash provided from the sale of MTF/ACB and ELK as discussed above, along with the sale of the remaining solar assets. The remaining portion of long-term debt that is due within one year is expected to be paid by utilizing funds provided from refinancing activity and from the Company's revolving credit facilities.

Management believes that actions presently being taken to pay off the long-term debt that is due within the next year will be successful as the Company has been successful in refinancing debt in the past. However, there can be no assurance that success will continue in the future. No adjustments have been made to the LFGTE assets customer relationships, which was primarily driven by revised assumptionsfinancial statements to account for decreased electric productionthis uncertainty.

AOCL - SJI and increased operating expenses, and was recorded in Impairment Charges on the consolidated statements ofSJG release income and in the Company's On-Site Energy Production segment. Also contributing to the decrease in intangible assets was amortization expense recorded during 2017 of $1.1 million.

GOODWILL - Goodwill represents the excess of the consideration paid over the fair value of identifiable net assets acquired. Goodwill is not amortized, but instead is subject to impairment testingtax effects from AOCL on an annual basis, and between annual tests whenever events or changes in circumstances indicate that the fair valueindividual unit of a reporting unit may be below its carrying amount. The Company performed its annual goodwill impairment test in the fourth quarter of 2017 beginning with a qualitative assessment at the reporting unit level. The reporting unit level is identified by assessing whether the components of our operating segments constitute businesses for which discrete financial information is available, whether segment management regularly reviews the operating results of those components and whether the economic and regulatory characteristics are similar. Factors utilized in the qualitative analysis performed on goodwill in our reporting units include, among other things, macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, company specific operating results and other relevant entity-specific events affecting individual reporting units.account basis.


In the absence of sufficient qualitative factors, goodwill impairment is determined using a two-step process. Step one identifies potential impairment by comparing the fair value of a reporting unit to the book value, including goodwill. If the fair value exceeds book value, goodwill of the reporting unit is not considered impaired. If the book value exceeds fair value, proceed to step two, which compares the implied fair value of the reporting unit's goodwill to the book value of the reporting unit goodwill. If the book value of goodwill exceeds the implied fair value, an impairment charge is recognized for the excess.


In connection with the annual goodwill impairment assessment, the Company performed a qualitative assessment over its business units and noted that as a result of the continuing cash flow losses incurred at the LFGTE's business unit, the two-step impairment test was necessary. Based on the results of the goodwill impairment test, the Company determined that the carrying value of the LFGTE's reporting unit was higher than the fair value, and accordingly, the Company recognized a pre-tax impairment charge of $1.3 million during the year ended December 31, 2017, recorded in Impairment Charges on the consolidated statements of income and included in the Company's On-Site Energy Production segment.

The Company concluded based on the results of the annual testing performed that, other than the impairment charges noted above, there were no other impairments identified for the years ended December 31, 2017 and 2016.

Goodwill of $3.6 million and $4.8 million is included in the Company's On-Site Energy Production segment and Noncurrent Assets on the consolidated balance sheets as of December 31, 2017 and 2016, respectively. SJG does not have any goodwill.

The following table summarizes the changes in Goodwill for the years ended December 31, 2017 and 2016, respectively (in thousands):


86
 20172016
Beginning Balance, January 1$4,838
$8,880
Impairment of Goodwill (see above)(1,260)—
Fair Value Adjustments During Measurement Period (See Note 3)—
(4,042)
Ending Balance, December 31$3,578
$4,838


NEW ACCOUNTING PRONOUNCEMENTS - Other than as described below, no new accounting pronouncement issued or effective during 2017, 2016 or 2015 had, or is expected to have, a material impact on the consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). This ASU supersedes the revenue recognition requirements in FASB ASC 605, Revenue Recognition, and in most industry-specific topics. The new guidance identifies how and when entities should recognize revenue. The new rules establish a core principle requiring the recognition of revenue to depict the transfer of promised goods or services to customers in an amount reflecting the consideration to which the entity expects to be entitled in exchange for such goods or services. In connection with this new standard, the FASB has issued several amendments to ASU 2014-09, as follows:

In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net). This standard improves the implementation guidance on principal versus agent considerations and whether an entity reports revenue on a gross or net basis.

In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing. This standard clarifies identifying performance obligations and the licensing implementation guidance.

In May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients. This standard provides additional guidance on (a) the objective of the collectibility criterion, (b) the presentation of sales tax collected from customers, (c) the measurement date of non-cash consideration received, (d) practical expedients in respect of contract modifications and completed contracts at transition, and (e) disclosure of the effects of the accounting change in the period of adoption.

In December 2016, the FASB issued ASU No. 2016-20, Technical Corrections and Improvements to (Topic 606), Revenue from Contracts with Customers, which amends certain narrow aspects of the guidance, including the disclosure of remaining performance obligations and prior-period performance obligations, as well as other amendments to the guidance on loan guarantee fees, contract costs, refund liabilities, advertising costs and the clarification of certain examples.


The new guidance in ASU 2014-09, as well as all amendments discussed above, is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. Management formed an implementation team that evaluated the impact that adoption of this guidance will have on the financial statements of SJI and SJG. This evaluation included assessing the impact of the guidance on our contracts in all our revenue streams by reviewing current accounting policies and practices to identify potential differences that would result from applying the new requirements to our revenue contracts. We expect that the majority of SJI and SJG revenue streams will be within the scope of the new guidance, which includes SJG’s regulated revenue under tariffs, for which no change in current revenue recognition practices is expected. Revenues from contracts that SJI and SJG have with customers are currently recorded as gas or electricity is delivered to the customer, which is consistent with the new guidance under ASC 606. As a result, based on the review of customer contracts to date, SJI is not anticipating this guidance to have a material impact to SJI's or SJG's statements of consolidated income, cash flows or consolidated balance sheets upon adoption. The ASU does include expanded disclosure requirements, which we will include for periods beginning after December 15, 2017 as noted in the ASU. We do not anticipate any significant changes to our business processes, systems or internal controls over financial reporting needed to support recognition and disclosure under the new guidance. We are continuing with our implementation plan and expect to transition to the new guidance beginning in 2018 using the modified retrospective approach.

In July 2015, the FASB issued ASU 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory. This ASU states that inventory for which cost is determined using a method other than last-in, first-out (LIFO) or the retail method should be subsequently measured at the lower of cost or net realizable value (NRV), rather than at the lower of cost or market. The standard is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2016. Adoption of this guidance did not have an impact on the financial statement results of SJI or SJG.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, which enhances the reporting model for financial instruments and includes amendments to address aspects of recognition, measurement, presentation and disclosure. The standard is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted for only certain portions of the new guidance. Management is currently determining the impact that adoption of this guidance will have on the financial statements of SJI and SJG.

In March 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which establishes a new lease accounting model for lessees. The new standard requires lessees to recognize substantially all leases be recognized by lessees on their balance sheet as a right-of-use asset and corresponding lease liability, including leases currently accounted for as operating leases. The new standardTopic 842 also will resultresulted in enhanced quantitative and qualitative disclosures, including significant judgments made by management, to provide greater insight into the extent of revenue and expense recognized and expected to be recognized from existing leases. The accounting for leases by the lessor remains relatively the same. The

In connection with this new standard, is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2018, with early adoption permitted. Management has formed an implementation team that is inventorying leases and evaluating the impact that adoption of this guidance will have on SJI's and SJG's financial statements, which includes monitoring industry specific developments including the exposure draft issued by the FASB has issued amendments to ASU 2016-02, including:

•In January 2018, the FASB issued an amendment (ASU 2018-01) to clarify the application of the new lease guidance to land easements and provided relief concerning adoption efforts for existing land easements that would introduceare not accounted for as leases under current GAAP.

•In July 2018, the FASB issued ASU 2018-10 and 2018-11, which included a land easement practical expedientnumber of technical corrections and improvements to ASC 842. Consistent withthis standard, including an additional option for transition. The guidance initially required a modified retrospective transition method of adoption, under which lessees and lessors were to recognize and measure leases at the beginning of the earliest period presented. The additional, optional transition method allows an entity to initially apply the requirements of the lease standard SJIat the adoption date, and SJG will both transition toavoid restating the comparative periods.

The new guidance using the modified retrospective approach. At this timein ASU 2016-02, as well as all amendments discussed above, was effective for the Company does not plan to early adopt the new guidance.

In March 2016, the FASB issued ASU 2016-05, Derivatives and Hedging (Topic 815): Effectbeginning on January 1, 2019. The impact of Derivative Contract Novations on Existing Hedge Accounting Relationships. The amendments in this guidance clarify that a change in the counterparty to a derivative instrument that has been designated as a hedging instrument underadopting Topic 815 does not, in and of itself, require dedesignation of that hedging relationship provided that all other hedge accounting criteria continue to be met. The standard is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2016, with early adoption permitted. Adoption of this guidance842 did not haveresult in an impact on the financial statements of SJI or SJG.

In March 2016, the FASB issued ASU 2016-07, Investments- Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting, which eliminates the requirement to apply the equity method of accounting retrospectively when a reporting entity obtains significant influence over a previously held investment. The standard is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2016, with early adoption permitted. Adoption of this guidance did not have an impact on the financial statements of SJI or SJG.


In March 2016, the FASB issued ASU 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which simplifies various aspects of accounting for share-based payment arrangements. The standard is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2016, with early adoption permitted. Adoption of this guidance did not have a material impact on the financial statements of SJI or SJG; however, cash flow presentation was modified for SJI to conform to this guidance, as described under “Basis of Presentation” above.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This standard is intended to provide guidance concerning the classification of certain cash receipts and cash payments in the statement of cash flows and to eliminate the diversity in practice related to such classifications. This standard is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2017, with early adoption permitted. Both SJI and SJG early adopted this ASU in the first quarter of 2017, and adoption of this guidance did not have an impact on the financial statements of SJI or SJG.

In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740); Intra-Entity Transfers of Assets Other Than Inventory. This standard requires recognition of the current and deferred income tax effects of an intra-entity asset transfer, other than inventory, when the transfer occurs, as opposed to current GAAP, which requires companies to defer the income tax effects of intra-entity asset transfers until the asset has been sold to an outside party. The income tax effects of intra-entity inventory transfers will continue to be deferred until the inventory is sold. ASU 2016-16 is effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within those annual reporting periods, with early adoption permitted. The standard is required to be adopted on a modified retrospective basis with a cumulative-effect adjustment recorded to retained earnings as of January 1, 2019.

As of January 1, 2019, the beginningCompany designed the necessary changes to its existing processes and configured all system requirements to adopt the new standard and applied its provisions to all contracts using the optional transition method discussed above, and by applying certain transition practical expedients. The Company elected the “package of practical expedients,” which permits the period of adoption. Management is currentlyCompany to not reassess under Topic 842 the Company’s prior conclusions about lease identification, lease classification and initial direct costs. The Company also elected the expedient not to evaluate existing or expired land easements under Topic 842 that were not previously accounted for as leases. The Company has elected not to use hindsight when determining the impactlease term at the effective date. The Company elected the short-term lease recognition exemption for all leases that qualify. For the leases that qualify, including leases effective at adoption, the Company will not recognize right-of-use assets or lease liabilities. The Company has elected the practical expedient to not separate lease and non-lease components for leases where it is a lessee. The Company’s non-lease components are primarily related to property maintenance on real estate leases, which varies based on future outcomes, and thus is recognized in rent expense when incurred. Additionally, the Company elected to apply a portfolio approach when establishing the discount rate for certain of this guidance will have onits leases.

The Company has leases for the financial statementsfollowing classes of SJIunderlying assets: equipment, real estate (land and SJG.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. This standard is intended to reduce diversity in practice in the classificationbuilding), and presentation of changes in restricted cash on the consolidated statement of cash flows. The ASU requires that the consolidated statement of cash flows explain the change in total cash and cash equivalents and amounts generally described as restricted cash or restricted cash equivalents when reconciling the beginning-of-period and end-of-period total amounts. The ASU also requires a reconciliation between the total of cash and equivalents and restricted cash presented on the consolidated statement of cash flows and the cash and cash equivalents balance presented on the consolidated balance sheets. ASU 2016-18 is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. Bothfleet vehicles. After adopting Topic 842, SJI and SJG early adopted this ASUhad operating right-of-use assets of approximately $3.1 million and $0.5 million, respectively, as of January 1, 2019, with operating lease liabilities of the same amounts. The Company did not have any finance leases.

The Company determines the initial classification and measurement of its right-of-use assets and lease liabilities at the lease commencement date and thereafter if modified. The lease term includes any renewal options that the Company is reasonably certain to exercise. The present value of lease payments is determined by using the interest rate implicit in the first quarterlease, if that rate is readily determinable. Otherwise, the Company uses its incremental borrowing rate, which is determined by using a portfolio approach based on the rate of 2017. Accordingly, cash flow presentations were modifiedinterest in its existing collateralized term loan facility adjusted for both entities to conform to this guidance, as described under “Basislease term.

Rent expense for operating leases is recognized on a straight-line basis over the reasonably certain lease term based on the total lease payments and is included in Operations Expense in the condensed consolidated statements of Presentation” above.income.


In January 2017,For all leases, rent payments that are based on a fixed index or rate are included in the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definitionmeasurement of a Business. This new standard provides amended and clarifying guidance regarding whether an integrated set ofright-of-use assets and activities acquired is deemedlease liabilities using the acquisition of a business (and, thus, accounted for as a business combination)index or rate at the acquisition of assets. This ASU is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, with early adoption permitted. Management is currently determininglease commencement date. Rent payments that vary based on changes in future indexes or rates are expensed in the impact that adoption of this guidance will haveperiod incurred.

For more information on the financial statements of SJI and SJG.Company's leases, see Note 9.


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In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The update simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount. The amendments in this Update are effective for annual and any interim impairment tests performed in periods beginning after December 31, 2019. Management is currently determining the impact thatdoes not expect adoption of this guidance willto have a material impact on the financial statements of SJI and SJG.


In March 2017, the FASB issued ASU 2017-07, Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. This ASU is designed to improve guidance related to the presentation of defined benefit costs in the income statement. In particular, this ASU requires an employer to report the service cost component in the same line item(s) as other compensation costs arising from services rendered by the pertinent employees during the period. The standard is effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods. Management is currently determining the impact that adoption of this guidance will have on the financial statements of SJI and SJG.


In May 2017, the FASB issued ASU 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting. This ASU clarifies and reduces both (i) diversity in practice and (ii) cost and complexity when applying the guidance in Topic 718, to a change to the terms and conditions of a share-based payment award. This standard is effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods, with early adoption permitted. The amendments in this ASU should be applied prospectively to an award modified on or after the adoption date. Management is currently determining the impact that adoption of this guidance will have on the financial statements of SJI and SJG.
In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. This ASU is intended to improve the financial reporting of hedging relationships so that it represents a more faithful portrayal of an entity’s risk management activities (i.e., to help financial statement users understand an entity’s risk exposures and the manner in which hedging strategies are used to manage them), as well as to further simplify the application of the hedge accounting guidance in GAAP. The standard isSJI and SJG adopted this guidance on January 1, 2019, consistent with the effective for annual periods beginning after December 15, 2018, including interim periods within those annual periods. Management is currently determining the impact that adoptiondate. Adoption of this guidance willdid not have an impact on the financial statementsstatement results of SJI andor SJG.

In February 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects From Accumulated Other Comprehensive Income. This ASU allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act (Tax Reform).Reform. Consequently, the amendments eliminate the stranded tax effects resulting from the Tax Reform and will improve the usefulness of information reported to financial statement users. SJI and SJG adopted this guidance on January 1, 2019, consistent with the effective date. Adoption of this guidance did not have an impact on the financial statement results of SJI or SJG. An election was not made to reclassify the income tax effects of Tax Reform from AOCL to retained earnings. SJI and SJG release income tax effects from AOCL on an individual unit of account basis.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. This ASU modifies the disclosure requirements on the timing of liquidation of an investee's assets and the description of measurement uncertainty at the reporting date. Entities are now required to disclose: (1) the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements; and (2) the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. Further, the standard eliminates disclosure requirements with respect to: (1) the transfers between Level 1 and Level 2 of the fair value hierarchy; (2) the policy for timing of transfers between levels; and (3) the valuation process for Level 3 fair value measurements. The ASUstandard is effective for all entities for fiscal years beginning after December 15, 2018,2019, and interim periods within those fiscal years. The new disclosure requirement for unrealized gains and losses, the range and weighted average of significant unobservable inputs and the narrative description of measurement uncertainty should be applied prospectively. All other amendments should be applied retrospectively to all periods presented upon their effective date. Management does not expect adoption of this guidance to have a material impact on the financial statements of SJI and SJG.

In August 2018, the FASB issued ASU 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20) Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plan. This ASU eliminates requirements for certain disclosures such as the amount and timing of plan assets expected to be returned to the employer and the amount of future annual benefits covered by insurance contracts. The standard added new disclosures such as for sponsors of the defined benefit plans to provide information relating to the weighted-average interest crediting rate for cash balance plans and other plans with promised interest crediting rates and an explanation for significant gains or losses related to changes in the benefit obligations for the period. The standard is effective for fiscal years ending after December 15, 2020. Early adoption is permitted. Management is currently determining the impact that adoption of this guidance will have on the financial statements of SJI and SJG.


2.STOCK-BASED COMPENSATION PLAN:

On April 30, 2015,In August 2018, the shareholdersFASB issued ASU 2018-15, Intangibles, Goodwill and Other Internal-Use Software (Topic 350): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract. This ASU aligns the requirements for capitalizing implementation costs for hosting arrangements (services) with costs for internal-use software (assets). As a result, certain implementation costs incurred in hosting arrangements will be deferred and amortized. This standard is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted. SJI and SJG early adopted this ASU during the third quarter of 2018, which did not result in a change to the financial statements of SJI approvedand SJG.


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In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. The amendments in this ASU provide codification improvements and further clarification on several topics, including ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, as well as ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10). Since SJI and SJG have adopted the amendments in ASU 2017-12 (with no impact to the financial statements results of SJI or SJG) as of April 25, 2019 (the issuance date of ASU 2019-04), the effective date for the amendments to Topic 815 contained in ASU 2019-04 is as of the beginning of the first annual reporting period beginning after April 25, 2019. Early adoption is permitted, including adoption on any date on or after April 25, 2019. The amendments are effective for fiscal years and interim periods beginning after December 15, 2019. Early adoption in any interim period is permitted. SJI and SJG do not plan to early adopt ASU 2019-04. Management does not expect adoption of this guidance to have a material impact on the financial statements of SJI and SJG.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, as amended. The amendments in this update replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to develop credit loss estimates. An entity will apply the amendment through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. In May 2019, the FASB issued ASU 2019-05, Financial Instruments - Credit Losses (Topic 326). The amendments in this ASU provide optional targeted transition relief for entities adopting the provisions of ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), which introduced the expected credit losses methodology for the measurement of credit losses on financial assets measured at amortized cost basis, replacing the previous incurred loss methodology. The amendments in ASU 2019-05 provide entities that have certain instruments within the scope of Subtopic 326-20, Financial Instruments - Credit Losses - Measured at Amortized Cost, with an option to irrevocably elect the fair value option in Subtopic 825-10, Financial Instruments - Overall, applied on an instrument-by-instrument basis for eligible instruments, upon adoption of Topic 326. The fair value option election does not apply to held-to-maturity debt securities. An entity that elects the fair value option should subsequently apply the guidance in Subtopics 820-10, Fair Value Measurement - Overall, and 825-10. The amendments in ASU 2019-05, along with ASU 2016-13, are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted as of the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. SJI and SJG did not early adopt ASU 2016-13 or ASU 2019-05.

Management has formed an implementation team to evaluate the impact that adoption of ASU 2016-13 and ASU 2019-05 will have on the financial statements of SJI and SJG. We have completed the assessment of the impact of the guidance on SJI's and SJG's reserve methodologies and credit policies and procedures for any assets that could be impacted, including (but not limited to) Accounts Receivable, Unbilled Revenues, Notes Receivable-Affiliates, and Contract Receivable balances that are recorded on the consolidated balance sheets. We are continuing with our implementation plan and have transitioned to the new guidance beginning in 2020. Management believes that the impact on its statement of financial position, its statement of comprehensive income and its statement of cash flows will not be material. Neither SJI nor SJG expect any impact on its beginning retained earnings at the effective date.

In January 2020, the FASB issued ASU 2020-01, Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815): Clarifying the Interactions between Topic 321, Topic 323, and Topic 815. The amendments in this ASU clarify that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method. The amendments in this ASU also clarify that for the purposes of applying Topic 815, an entity should not consider whether, upon the settlement of a forward contract or exercise of a purchased option, individually or with existing investments, the underlying securities would be accounted for under the equity method in Topic 323 or the fair value option in accordance with the financial instruments guidance in Topic 825. The standard is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years, for public companies. Early adoption is permitted, including early adoption in an interim period. Management is currently determining the impact that adoption of this guidance will have on the financial statements of SJI and SJG.

2. STOCK-BASED COMPENSATION PLAN:

Under SJI's 2015 Omnibus Equity Compensation Plan (Plan), replacing the Amended and Restated 1997 Stock-Based Compensation Plan that had terminated on January 26, 2015. Under the Plan, shares may be issued to SJI’s officers (Officers), non-employee directors (Directors) and other key employees. NoNaN options were granted or outstanding during the years ended December 31, 2017, 20162019, 2018 and 2015.   No2017.  NaN stock appreciation rights have been issued under the plans.Plan. During the years ended December 31, 2017, 20162019, 2018 and 2015,2017, SJI granted 167,734, 194,347184,791, 201,858 and 158,929167,734 restricted shares, respectively, to Officers and other key employees under the plans.Plan.  Performance-based restricted shares vest over a three-yearthree-year period and are subject to SJI achieving
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certain market and earnings-based performance targets, which can cause the actual amount of shares that ultimately vest to range from 0% to 200% of the original shares granted.


In 2015, SJI began grantinggrants time-based shares of restricted stock, one-third of which vests annually over a three-yearthree-year period and which are limited to a 100% payout. Vesting of time-based grants is contingent upon SJI achieving a return on equity (ROE)ROE of at least 7% during the initial year of the grant and meeting the service requirement. Provided that the 7% ROE requirement is met in the initial year, payout is solely contingent upon the service requirement being met in years two and three of the grant. Beginning in 2018, the vesting and payout of time-based shares of restricted stock is solely contingent upon the service requirement being met in years one, two, and three of the grant. In 2017, 2016,2019, 2018, and 2015,2017, Officers and other key employees were granted 88,550, 67,479, and53,058 58,304, and 47,678 shares of time-based restricted stock, respectively, which are included in the shares noted above.

Grants containing market-based performance targets use SJI's total shareholder return (TSR)TSR relative to a peer group to measure performance. As TSR-based grants are contingent upon market and service conditions, SJI is required to measure and recognize stock-based compensation expense based on the fair value at the date of grant on a straight-line basis over the requisite three-yearthree-year period of each award. In addition, SJI identifies specific forfeitures of share-based awards, and compensation expense is adjusted accordingly over the requisite service period. Compensation expense is not adjusted based on the actual achievement of performance goals. The fair value of TSR-based restricted stock awards on the date of grant is estimated using a Monte Carlo simulation model.


Through 2014, grants containing earnings-based targets were based on SJI's earnings growth rate per share (EGR) relative to a peer group to measure performance. In 2015, earnings-basedEarnings-based performance targets includedinclude pre-defined EGR and ROE goals to measure performance. Beginning in 2016, performancePerformance targets include pre-defined compounded earnings annual growth rate (CEGR)CEGR for SJI. As EGR-based, ROE-based and CEGR-based grants are contingent upon performance and service conditions, SJI is required to measure and recognize stock-based compensation expense based on the fair value at the date of grant over the requisite three-yearthree-year period of each award. The fair value is measured as the market price at the date of grant. The initial accruals of compensation expense are based on the estimated number of shares expected to vest, assuming the requisite service is rendered and probable outcome of the performance condition is achieved. That estimate is revised if subsequent information indicates that the actual number of shares is likely to differ from previous estimates. Compensation expense is ultimately adjusted based on the actual achievement of service and performance targets.


SJI granted 30,394, 35,19730,961, 26,416 and 26,33830,394 restricted shares to Directors in 2017, 20162019, 2018 and 2015,2017, respectively.  Shares issued to Directors vest over after twelve months and contain no performance conditions. As a result, 100% of the shares granted generally vest.

The following table summarizes the nonvested restricted stock awards outstanding at December 31, 2017,2019, and the assumptions used to estimate the fair value of the awards:


 GrantsShares OutstandingFair Value Per ShareExpected VolatilityRisk-Free Interest Rate
Officers & Key Employees -2017 - TSR40,226  $32.17  20.8 %1.47 %
2017 - CEGR, Time53,373  33.69  N/A  N/A  
2018 - TSR50,094  $31.05  21.9 %2.00 %
2018 - CEGR, Time82,429  $31.23  N/A  N/A  
2019 - TSR38,934  $32.88  23.2 %2.40 %
2019 - CEGR, Time137,091  $31.38  N/A  N/A  
Directors -201930,961  $27.07  N/A  N/A  
 Grants Shares Outstanding Fair Value Per Share Expected Volatility Risk-Free Interest Rate
Officers & Key Employees -2015 - Time 11,142
 $29.47
 N/A
 N/A
 2016 - TSR 65,206
 $22.53
 18.1% 1.31%
 2016 - CEGR, Time 101,987
 $23.52
 N/A
 N/A
 2017 - TSR 56,191
 $32.17
 20.8% 1.47%
 2017 - CEGR, Time 108,267
 $33.69
 N/A
 N/A
          
Directors -2017 30,394
 $33.64
 N/A
 N/A


Expected volatility is based on the actual volatility of SJI’s share price over the preceding three-yearthree-year period as of the valuation date. The risk-free interest rate is based on the zero-coupon U.S. Treasury Bond, with a term equal to the three-yearthree-year term of the Officers' and other key employees' restricted shares. As notional dividend equivalents are credited to the holders during the three-yearthree-year service period, no reduction to the fair value of the award is required. As the Directors’ restricted stock awards contain no performance conditions and dividends are paid or credited to the holder during the requisite service period, the fair value of these awards are equal to the market value of the shares on the date of grant.


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The following table summarizes the total stock-based compensation cost for the years ended December 31 (in thousands):


 201920182017
Officers & Key Employees$4,371  $3,321  $3,232  
Directors838  823  1,022  
Total Cost5,209  4,144  4,254  
Capitalized(275) (386) (288) 
Net Expense$4,934  $3,758  $3,966  
 2017 2016 2015
Officers & Key Employees$3,232
 $3,051
 $1,128
Directors1,022
 841
 769
Total Cost4,254
 3,892
 1,897
      
Capitalized(288) (385) (216)
Net Expense$3,966
 $3,507
 $1,681

The table above reflects the reversal of approximately $1.1 million, $0.1 million and $1.2 million of previously recorded costs in 2017, 2016 and 2015, respectively. These reversals are associated with EPS-based grants for which performance goals were not met.


As of December 31, 2017,2019, there was $5.0$5.1 million of total unrecognized compensation cost related to nonvested stock-based compensation awards granted under the plans. That cost is expected to be recognized over a weighted average period of 1.7 years.


The following table summarizes information regarding restricted stock award activity during 2017,2019, excluding accrued dividend equivalents:
 Officers & Other Key EmployeesDirectors
Weighted
Average
Fair Value
Nonvested Shares Outstanding, January 1, 2019411,809  26,416  $29.57  
Granted184,791  30,961  $31.03  
Vested(148,213) (26,416) $26.07  
Cancelled/Forfeited(46,241) —  $31.57  
Nonvested Shares Outstanding, December 31, 2019402,146  30,961  $31.50  
 Officers & Other Key Employees Directors 
Weighted
Average
Fair Value
Nonvested Shares Outstanding, January 1, 2017295,515
 35,197
 $24.96
Granted167,734
 30,394
 $33.24
Vested*(114,199) (35,197) $24.81
Cancelled/Forfeited**(6,257) —
 $28.77
Nonvested Shares Outstanding, December 31, 2017342,793
 30,394
 $28.60



*Based on performance information available at the filing of this Report, management expects to award 15,092 shares associated with the 2015 grants to Officers and other key employees in 2018.
** Represents shares forfeited as a result of separation of employment prior to the satisfaction of service conditions.

During the years ended December 31, 20172019, 2018 and 2016,2017, SJI awarded 65,628125,288, 67,130 and 13,247,65,628, respectively, shares to its Officers and other key employees at a market value of $3.7 million, $2.0 million and $2.2 million, and $0.3 million, respectively. In 2015, no shares were awarded. Also, during the years ended December 31, 2017, 20162019, 2018 and 2015,2017, SJI granted 30,394, 35,19730,961, 26,416 and 26,33830,394 shares to its Directors at a market value of $1.0$0.8 million, $0.8 million and $0.8$1.0 million, respectively.


SJI has a policy of issuing new shares to satisfy its obligations under the Plan; therefore, there are no cash payment requirements resulting from the normal operation of the Plan. However, a change in control could result in such shares becoming nonforfeitable or immediately payable in cash.  At the discretion of the Officers, Directors and other key employees, the receipt of vested shares can be deferred until future periods.  These deferred shares are included in Treasury Stock on the consolidated balance sheets.


SJG - Officers and other key employees of SJG participate in the stock-based compensation plans of SJI. During the years ended December 31, 2017, 20162019, 2018 and 2015,2017, SJG officers and other key employees were granted 24,001, 33,2186,095, 32,924 and 26,26624,001 shares of SJI restricted stock, respectively. The cost of outstanding stock awards for SJG during the years ended December 31, 2019, 2018 and 2017 2016 and 2015 was $0.4$0.1 million and $0.6 million and 0.3$0.4 million, respectively. Approximately one-half70% of these costs were capitalized on SJG's balance sheets to Utility Plant.


3.AFFILIATIONS, DISCONTINUED OPERATIONS AND RELATED-PARTY TRANSACTIONS:

3. AFFILIATIONS, DISCONTINUED OPERATIONS AND RELATED-PARTY TRANSACTIONS:

AFFILIATIONS — The following affiliated entities are accounted for under the equity method:


PennEast - Midstream has a 20% investment in PennEast. The following events have occurred with respect to PennEast in recent months:

•On September 10, 2019, the U.S. Court of Appeals for the Third Circuit ruled that PennEast does not have eminent domain authority over NJ state-owned lands. A Petition for Rehearing En Banc was denied by the U.S. Court of Appeals for the Third Circuit on November 5, 2019.
•On October 8, 2019, the NJDEP denied and closed PennEast’s application for several permits without prejudice, citing the Third Circuit Court decision. On October 11, 2019, PennEast submitted a letter to the NJDEP objecting to its
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position that the application is administratively incomplete. PennEast's objections were rejected by the NJDEP on November 18, 2019.
•In December 2019, PennEast asked the FERC for a two-year extension to construct the pipeline.
•On January 30, 2020, the FERC voted to approve PennEast’s petition for a declaratory order and expedited action requesting that the body issue an order interpreting the Natural Gas Act’s eminent domain authority. On the same day, PennEast filed an amendment with FERC to construct PennEast in two phases. Phase one consists of construction of a pipeline in Pennsylvania from the eastern Marcellus Shale region in Luzerne County that would terminate in Northampton County. Phase two includes construction of the remaining original certificated route in Pennsylvania and New Jersey. Construction is expected to begin following approval by FERC of the phased approach and receipt of any remaining governmental and regulatory permits.
•On February 18, 2020, PennEast filed a Petition for a Writ of Certiorari with the Supreme Court of the United States to review the September 10, 2019 Third Circuit decision.
•On February 20, 2020, FERC granted PennEast’s request for a two-year extension to complete the construction of the pipeline.

PennEast management remains committed to pursuing the project and intends to pursue all available options. SJI, along with the other partners, are intending to contribute to the project.

Our investment in PennEast totaled $82.7 million as of December 31, 2019. As a result of the September decision by the U.S. Court of Appeals and continuing events, we evaluated our investment in the PennEast project for an other-than-temporary impairment. Our impairment assessment used a discounted cash flow income approach, including consideration of the severity and duration of any decline in fair value of our investment in the project. Our significant estimates and assumptions included development options and legal outcomes, construction costs, timing of in-service dates, revenues (including forecasted volumes and rates), and discount rates. At this time, we believe we do not have an other-than-temporary impairment and have not recorded any impairment charge to reduce the carrying value of our investment. Our evaluation considered that the pending legal proceedings are at very early stages, and the intent is to move forward with all potential legal proceedings and other options available. However, to the extent that the legal proceedings have unfavorable outcomes, or if PennEast concludes that the project is not viable or does not go forward as actions progress, our conclusions with respect to other-than-temporary impairment could change and may require that we recognize an impairment charge of up to our recorded investment in the project, net of any cash and working capital. We will continue to monitor and update this analysis as required. Different assumptions could affect the timing and amount of any charge recorded in a period.

Energenic – US, LLC (Energenic) - Marina and a joint venture partner formed Energenic, in which Marina has a 50% equity interest. Energenic developed and operated on-site, self-contained, energy-related projects.

On December 31, 2015, Energenic Marina and its joint venture partner entered into two Equity Distribution and Purchase Agreements (the "Transaction"), pursuant to which Marina became the sole owner of eight of the Energenic projects ("Marina Projects") and its joint venture partner became the sole owner of seven other Energenic projects ("Partner Projects"). The Transaction has been accounted for as a distribution of member interests by Energenic to its owners and a business combination through the exchange of member interests in various projects between Marina and its joint venture partner. In connection with the exchange, the joint venture partner provided a $19.5 million note payable to Marina. The note and other existing obligations of the joint venture partner to Marina are included in Notes Receivable on the consolidated balance sheets, with approximately $1.5 million being included as a current asset as of December 31, 2016 as it is due within one year. This note is collateralized by security interests in various energy project assets owned by the joint venture partner, as well as personal guarantees from its principals.

As part of the transaction, each party is relieved ofcurrently does not have any guarantees related to the Projects in which it no longer has an ownership interest. 
The projects that are now wholly-owned by Marina are ACB, ACLE, BCLE, SCLE, SXLE, MCS, NBS and SBS.operational.
Through December 31, 2015, Marina’s investment in Energenic was accounted for under the equity method of accounting. As such, Marina’s share of the equity value of the projects was included within Investment in Affiliates on the consolidated balance sheets and Marina’s share of the loss or earnings from the projects was included within Equity in (Loss) Earnings of Affiliated Companies on the statements of consolidated income for the years ended December 31, 2015 and 2014, respectively. As of December 31, 2015, the assets and liabilities of the projects that are now wholly-owned by Marina are consolidated into the consolidated balance sheets. Beginning in 2016, the respective results from operations and cash flows of the projects that are now wholly-owned by Marina are consolidated into the statements of consolidated income and cash flows, respectively. This transaction represents a non-cash investing and financing activity. The results of the acquired projects are included in the On-Site Energy Production segment.

The following table summarizes the final purchase price allocation and reflects 100% of the fair values of the assets acquired and the liabilities assumed by the Company in connection with the Transaction. Total consideration for the step acquisition of the remaining interest in the Marina Projects was $46.0 million, which represents the fair value of the Company’s interest in the Partner Projects exchanged ($31.5 million) as well as the existing value of the Marina Projects immediately prior to the exchange ($14.5 million) (in thousands):
  
Current assets (excluding inventory)$7,804
Inventory3,154
Note Receivable Received19,504
Fixed Assets46,460
Intangible Assets: 
     Identifiable Intangibles16,950
     Goodwill4,838
Non-Current Assets4,783
Current Liabilities(8,196)
Note Payable - Affiliate(16,986)
Long-Term Debt, including current portion(21,642)
Capital Lease Payable(10,458)
Other Non-Current Liabilities(181)
          Fair Value of Consolidated Assets and Liabilities of Acquired Projects$46,030

The pro forma impact of this transaction on the operations of the Company is not significant.


Potato Creek LLC (Potato Creek) - SJI and a joint venture partner formed Potato Creek, in which SJI has a 30% equity interest.  Potato Creek owns and manages the oil, gas and mineral rights of certain real estate in Pennsylvania.

PennEast Pipeline Company, LLC (PennEast) - Midstream has a 20% investment in PennEast, which is planning to construct an approximately 118-mile natural gas pipeline that will extend from Northeastern Pennsylvania into New Jersey.


Millennium Account Services, LLC (Millennium) - SJI and a joint venture partner formed Millennium, in which SJI has a 50% equity interest. Millennium reads utility customers’ meters on a monthly basis for a fee.


EnergyMark LLC (EnergyMark) - SJE has a 33% investment in EnergyMark, an entity that acquires and markets natural gas to retail end users.users.
For the years ended December 31, 20172019, 2018 and 2016,2017, SJRG had net sales to EnergyMark of $37.5$27.8 million, $41.6 million and $31.4$37.5 million, respectively.

EnerConnex - SJEI has a 25% investment in EnerConnex, which is a retail and wholesale broker and consultant that matches end users with suppliers for the procurement of natural gas and electricity.

The Company made net investments in unconsolidated affiliates of $8.3 million, $6.6 million and $32.1 million in 2019, 2018 and $7.5 million in 2017, and 2016, respectively. As of December 31, 20172019 and 2016,2018, the outstanding balance of Notes Receivable – AffiliateAffiliates was $18.2$18.1 million and $15.7$15.2 million, respectively. As of December 31, 2017, approximatelyThese Notes Receivable-Affiliates are broken out as follows:

•$13.1 million and $13.6 million, respectively, of these notes are related to Energenic, which are secured by property, plant and equipment of the affiliates,Energenic's cogeneration assets for energy service projects, accrue interest at 7.5% and are to be repaid through 2025. As of December 31, 2019 and 2018, $4.4 million and $3.4 million, respectively, of interest has been accrued and is recorded in Accounts Receivable on the consolidated balance sheets. No payments have been made on this note as of December 31, 2019.
•The remaining $4.6$5.0 million and $1.6 million of these notes are unsecured and accrue interest at variable rates.

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SJI holds significant variable interests in these entities but is not the primary beneficiary. Consequently, these entities are accounted for under the equity method because SJI does not have both (a) the power to direct the activities of the entity that most significantly impact the entity’s economic performance and (b) the obligation to absorb losses of the entity that could potentially be significant to the entity or the right to receive benefits from the entity that could potentially be significant to the entity. As of December 31, 2017,2019, the Company had a net asset of approximately $62.3$87.1 million included in Investment in Affiliates on the consolidated balance sheets related to equity method investees, in addition to Notes Receivable – AffiliateAffiliates as discussed above. SJI’s maximum exposure to loss from these entities as of December 31, 20172019 is limited to its combined equity contributions and the Notes Receivable-AffiliateReceivable-Affiliates in the aggregate amount of $80.5$105.2 million.



DISCONTINUED OPERATIONS - Discontinued Operations consist of the environmental remediation activities related to the properties of South Jersey Fuel, Inc. (SJF)SJF and the product liability litigation and environmental remediation activities related to the prior business of The Morie Company, Inc. (Morie).Morie. SJF is a subsidiary of Energy & Minerals, Inc. (EMI),EMI, an SJI subsidiary, which previously operated a fuel oil business. Morie is the former sand mining and processing subsidiary of EMI. EMI sold the common stock of Morie in 1996.


SJI conducts tests annually to estimate the environmental remediation costs for these properties.properties (see Note 15).

Summarized operating results of the discontinued operations for the years ended December 31, were (in thousands, except per share amounts):
 201920182017
Loss before Income Taxes:   
Sand Mining$(79) $(118) $(84) 
Fuel Oil(263) (184) (175) 
Income Tax Benefits70  62  173  
Loss from Discontinued Operations — Net$(272) $(240) $(86) 
Earnings Per Common Share from   
Discontinued Operations — Net:   
Basic and Diluted$—  $—  $—  
 2017 2016 2015
Loss before Income Taxes:     
Sand Mining$(84) $(205) $(422)
Fuel Oil(175) (179) (338)
Income Tax Benefits173
 133
 257
Loss from Discontinued Operations — Net$(86) $(251) $(503)
Earnings Per Common Share from   
  
Discontinued Operations — Net:   
  
Basic and Diluted$—
 $—
 $(0.01)


SJG RELATED-PARTY TRANSACTIONS - SJG conducts business with its parent, SJI, and several other related parties. A description of each of these affiliates and related transactions is as follows:


South Jersey Energy Solutions, LLC (SJES)SJES - a wholly ownedwholly-owned subsidiary of SJI that serves as a holding company for all of SJI’s nonutility operating businesses:


•SJE - ForPrior to the sale of SJE's retail gas business (see Note 1), for SJE’s commercial customers for which SJG performsperformed billing services, SJG purchasespurchased the related accounts receivable at book value and chargescharged them a purchase of receivable fee (POR) for potential uncollectible accounts, and assumesassumed all risk associated with collection.


•SJRG - SJG sells natural gas for resale and capacity release to SJRG and also meets some of SJG's gas purchasing requirements by purchasing natural gas from SJRG.


•Marina - SJG provides natural gas transportation services to Marina under BPU-approved tariffs.


•Millennium - Reads SJG's utility customers’ meters on a monthly basis for a fee.


Sales of gas to SJRG and SJE comply with Section 284.02 of the Regulationsregulations of the Federal Energy Regulatory Commission (FERC).FERC.


In addition to the above, SJG provides various administrative and professional services to SJI and each of the affiliates discussed above. Likewise, SJI provides substantial administrative services on SJG's behalf. For certain types of transactions, SJG served as central processing agents for the related parties discussed above. Amounts due to and due from these related parties for pass-through items are not considered material to SJG's financial statements as a whole.




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A summary of related party transactions involving SJG, excluding pass-through items, included in SJG's Operating Revenues were as follows (in thousands):


201920182017
Operating Revenues/Affiliates: 
SJRG$5,039  $5,813  $4,458  
Marina394  379  314  
Other80  91  86  
Total Operating Revenues/Affiliates$5,513  $6,283  $4,858  
 2017 2016 2015
Operating Revenues/Affiliates (See Note 1):      
SJRG$4,458
 $6,934
 $5,342
Marina314
 302
 185
Other86
 83
 417
Total Operating Revenues/Affiliates$4,858
 $7,319
 $5,944


Related-party transactions involving SJG, excluding pass-through items, included in SJG's Cost of Sales and Operating Expenses were as follows (in thousands):


201920182017
Costs of Sales/Affiliates (Excluding depreciation and amortization)
SJRG*$9,612  $33,313  $24,337  
Operations Expense/Affiliates:
SJI$22,462  $31,740  $22,154  
SJIU1,833  —  —  
Millennium3,146  2,920  2,856  
Other1,680  (569) (653) 
Total Operations Expense/Affiliates$29,121  $34,091  $24,357  
 2017 2016 2015
Costs of Sales/Affiliates (excluding depreciation)     
SJRG*$24,337
 $16,306
 $26,090
      
Derivative Losses/(Gains) (See Note 1):     
SJRG$—
 $—
 $64
      
Operations Expense/Affiliates:     
SJI$22,154
 $20,296
 $14,088
Millennium2,856
 2,803
 2,746
Other(653) (198) (412)
Total Operations Expense/Affiliates$24,357
 $22,901
 $16,422


*These costs are included in either SJG's Cost of Sales on the statements of income, or Regulatory Assets on the balance sheets. As discussed in Note 1, to the consolidated financial statements, revenues and expenses related to the energy trading activities of the wholesale energy operations at SJRG are presented on a net basis in Operating Revenues - Nonutility on the statements of consolidated income.


4.INCOME TAXES:

4. INCOME TAXES:
 
SJI files a consolidated federal income tax return. Statereturn and various state income tax returns, some of which are filed on a separate company basis in states where SJI has operations and/combined or a requirement to file.unitary.


Total income taxes applicable to operations differ from the tax that would have resulted by applying the statutory Federal income tax rate to pre-tax income for SJI and SJG for the following reasons (in thousands):
 201920182017
SJI (includes SJG and all other consolidated subsidiaries):   
Tax at Statutory Rate*$20,633  $3,877  $(9,915) 
Increase (Decrease) Resulting from:   
   State Income Taxes7,813  622  2,778  
   ESOP Dividend(697) (791) (1,314) 
   Tax Reform Adjustments—  (588) (13,521) 
   AFUDC(1,546) (1,835) (3,094) 
   Amortization of Excess Deferred Taxes(3,475) (893) —  
   Investment and Other Tax Credits(953) (93) (666) 
   Other - Net(714) 262  795  
Income Taxes:   
   Continuing Operations21,061  561  (24,937) 
   Discontinued Operations(70) (62) (173) 
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Total Income Tax Expense (Benefit)Total Income Tax Expense (Benefit)$20,991  $499  $(25,110) 
SJG:SJG:
Tax at Statutory Rate*Tax at Statutory Rate*25,245  22,966  41,390  
Increase (Decrease) Resulting from:Increase (Decrease) Resulting from:
State Income TaxesState Income Taxes9,542  5,220  5,955  
ESOP DividendESOP Dividend(592) (712) (1,182) 
AFUDCAFUDC(591) (1,126) (1,446) 
Other - NetOther - Net(782) 65  983  
Total Income Tax ExpenseTotal Income Tax Expense32,822  26,413  45,700  
The provision for Income Taxes is comprised of the following (in thousands):The provision for Income Taxes is comprised of the following (in thousands):
 2017 2016 2015    
SJI (includes SJG and all other consolidated subsidiaries):  
  
  
SJI (includes SJG and all other consolidated subsidiaries):201920182017
Tax at Statutory Rate $(9,915) $60,624
 $37,440
Increase (Decrease) Resulting from:      
State Income Taxes 2,778
 6,438
 3,985
ESOP Dividend (1,314) (1,300) (1,298)
Tax Reform Adjustments (13,521) —
 —
Amortization of Investment Tax Credits - Utility —
 —
 (149)
AFUDC (3,094) (900) (1,109)
Investment and Other Tax Credits (666) (10,706) (37,503)
Other - Net 795
 (5) (6)
Current:Current:   
Federal Federal$—  $(13,790) $(34,971) 
State State(482) 3,959  (48) 
Total Current Total Current(482) (9,831) (35,019) 
Deferred:Deferred:   
Federal Federal11,171  13,564  5,761  
State State10,372  (3,172) 4,321  
Total Deferred Total Deferred21,543  10,392  10,082  
Income Taxes:Income Taxes:   
Continuing Operations Continuing Operations21,061  561  (24,937) 
Discontinued Operations Discontinued Operations(70) (62) (173) 
Total Income Tax Expense (Benefit)Total Income Tax Expense (Benefit)$20,991  $499  $(25,110) 
SJG:SJG:
Current:Current:
FederalFederal$—  $(12,766) $(33,012) 
StateState—  —  —  
Total CurrentTotal Current—  (12,766) (33,012) 
Deferred:Deferred:
FederalFederal20,744  32,571  69,550  
StateState12,078  6,608  9,162  
Total DeferredTotal Deferred32,822  39,179  78,712  
Total Income Tax ExpenseTotal Income Tax Expense$32,822  $26,413  $45,700  

*See Tax Reform discussion below.

Income Taxes:      
   Continuing Operations (24,937) 54,151
 1,360
   Discontinued Operations (173) (133) (257)
Total Income Tax (Benefit) Expense $(25,110) $54,018
 $1,103
       
SJG:      
Tax at Statutory Rate 41,390
 37,944
 36,233
Increase (Decrease) Resulting from: 
 
 
State Income Taxes 5,955
 4,096
 4,584
Amortization of Investment Tax Credits —
 —
 (149)
ESOP Dividend (1,182) (1,170) (1,168)
AFUDC (1,446) (900) (1,109)
Research and Development Credits —
 (613) (1,400)
Other - Net 983
 9
 (46)
Total Income Tax Expense 45,700
 39,366
 36,945
       
The provision for Income Taxes is comprised of the following (in thousands):      
   
  
  
SJI (includes SJG and all other consolidated subsidiaries): 2017 2016 2015
Current:  
  
  
   Federal $(34,971) $—
 $—
   State (48) (1,638) (2,352)
      Total Current (35,019) (1,638) (2,352)
Deferred:      
   Federal 5,761
 44,246
 (4,622)
   State 4,321
 11,543
 8,483
      Total Deferred 10,082
 55,789
 3,861
Investment Tax Credit - Utility —
 —
 (149)
Income Taxes:      
      Continuing Operations (24,937) 54,151
 1,360
      Discontinued Operations (173) (133) (257)
Total Income Tax (Benefit) Expense $(25,110) $54,018
 $1,103
       
SJG:      
Current:      
Federal (33,012) —
 —
State —
 (1,614) (2,203)
Total Current $(33,012) $(1,614) $(2,203)
Deferred:      
Federal 69,550
 33,064
 30,042
State 9,162
 7,916
 9,255
Total Deferred $78,712
 $40,980
 $39,297
Investment Tax Credits —
 —
 (149)
Total Income Tax Expense $45,700
 $39,366
 $36,945

For the years ended December 31, 2019 and 2018, changes in SJI and SJG tax expense correlated with changes in income before income taxes. For the year ended December 31, 2017, the Company's overall taxes went from anSJI's tax expense in 2016 to a benefit in 2017decreased primarily due to adjustments made as a result of the Tax Cuts and Jobs Act (discussed below)Reform along with an overall loss before income taxes, as opposed to income in 2016, primarily due to several impairment charges taken (see Note 1), along with an unfavorable court ruling related to a pricing dispute between SJRG and a supplier (see Note 15). These were partially offset with the impact of recording no investment tax credits on renewable energy facilities in 2017 which is consistent with SJI's previously announced strategy of substantially reducing solar development.

Investment Tax Credits attributable to SJG are deferred and amortized at the annual rate of 3.0%, which approximates the life of related assets.taxes.
 

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TAX REFORM - On December 22, 2017, the Tax Cuts and Jobs Act ("Tax Reform")Reform was enacted into law, which changeschanging various corporate income tax provisions within the existing Internal Revenue Code. The law became effective January 1, 2018 but iswas required to be accounted for in the period of enactment, which foras such SJI and SJG isadopted the new requirements in the fourth quarter of 2017. SJI and SJG were impacted in several ways as a result of Tax Reform, including provisions related to the permanent reduction in the U.S. federal corporate income tax rate from 35% to 21%, modification of bonus depreciation and changes to the deductibility of certain business related expenses. As a result of the change in the federal corporate income tax rate, SJI and SJG revalued deferred tax assets and liabilities to reflect the rates expected to be in effect as a result of Tax Reform. This resulted in SJI recording a $13.5$14.1 million income tax benefit in total for the decrease of its net deferred tax liabilities, which was recorded in Income Taxes on the consolidated statements of income for the year ended December 31, 2017.liabilities. SJG also recorded a $263.8$260.5 million total decrease in its net deferred tax liabilities, which resulted in an increase to SJG's regulatory liabilities as of December 31, 2017 as such amounts are probable of settlement or recovery through customer rates. The amounts noted above were the total recorded between 2017 and 2018 as a result of Tax Reform. The amount and timing of potential settlements of the established net regulatory liability will be determined by the BPU, subject to certain IRS "normalization" provisions. All adjustments related to Tax Reform were recorded in the Corporate & Services segment.


The SEC staff issued Staff Accounting BulletinSAB 118, (SAB 118), which provides guidance on accounting for the tax effects of Tax Reform. SAB 118 provides a measurement period that should not extend beyond one year from the enactment date of Tax Reform for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of Tax Reform for which the accounting under ASC 740 is complete. To

As of December 31, 2018, SJI and SJG consider the extent that a company’s accounting for certain income tax effects ofimpacts from Tax Reform is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included incomplete. While we still expect additional guidance from the financial statements, it should continue to apply ASC 740 on the basisU.S. Department of the provisionsTreasury and the IRS, we have finalized our calculations using available guidance. Any additional issued guidance or future actions of our regulators could potentially affect the final determination of the tax laws that were in effect immediately beforeaccounting effects arising from the enactmentimplementation of Tax Reform.


The Company was ableIn November 2018, the IRS issued proposed regulations that allow all interest expense of a consolidated group to make reasonable, good faith estimatesbe deductible as long as a public utility comprises at least 90 percent of certain effectsthe total consolidated business. Under these proposed regulations, SJI expects to meet the de minimis safe harbor rule in 2019 and 2018 and therefore, recorded provisional adjustments for the following: the tax rules regarding the appropriate bonus deprecation rate that shouldfull amount of SJI’s 2019 and 2018 consolidated interest expense would be applied to assets placed in service after September 27, 2017, including the information required to compute the applicable depreciable tax basis. Further, Tax Reform is unclear in certain respects and will require interpretations and implementing regulations by the Internal Revenue Service, as well as state tax authorities. Tax Reform could also be subject to potential amendments and technical corrections which could impact the Company’s financial statements.deductible.


Any required changes to the provisional estimates would result in the recording of regulatory assets or liabilities to the extent such amounts are probable of settlement or recovery through customer rates and a net change to income tax expense for any other amounts. Final adjustments to the provisional amounts are expected to be recorded by the third quarter of 2018. The accounting for all other applicable provisions of Tax Reform is considered complete based on the current interpretation.

The net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting and income tax purposes resulted in the following net deferred tax assets and liabilities for SJI and SJG at December 31 (in thousands):

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SJI (includes SJG and all other consolidated subsidiaries): 2017 2016SJI (includes SJG and all other consolidated subsidiaries):20192018
Deferred Tax Assets:    Deferred Tax Assets:
Net Operating Loss Carryforward $152,541
 $211,004
 Net Operating Loss Carryforward$122,197  $125,418  
Investment and Other Tax Credits 214,605
 213,946
 Investment and Other Tax Credits215,033  214,698  
Derivatives / Unrealized Gain 2,068
 —
Conservation Incentive Program —
 —
 Conservation Incentive Program1,991  1,701  
Deferred State Tax 16,905
 28,833
 Deferred State Tax18,514  16,087  
Gross Up of Excess Deferred Taxes 76,426
 —
Income Taxes Recoverable Through Rates Income Taxes Recoverable Through Rates103,922  103,434  
Pension & Other Post Retirement Benefits 16,624
 19,351
 Pension & Other Post Retirement Benefits28,579  16,560  
Deferred Revenues 5,726
 7,669
 Deferred Revenues5,324  5,736  
Deferred Regulatory Costs Deferred Regulatory Costs11,895  —  
Provision for Uncollectibles 3,854
 5,231
 Provision for Uncollectibles4,749  5,319  
Other 1,949
 8,368
 Other16,705  4,639  
Total Deferred Tax Asset $490,698
 $494,402
 Total Deferred Tax Asset$528,909  $493,592  
Deferred Tax Liabilities:    Deferred Tax Liabilities:  
Book versus Tax Basis of Property $486,854
 $732,535
 Book versus Tax Basis of Property$479,765  $458,772  
Deferred Gas Costs - Net 10,254
 2,052
 Deferred Gas Costs - Net23,728  25,812  
Derivatives / Unrealized Loss —
 1,794
Derivatives / Unrealized Gain Derivatives / Unrealized Gain1,098  4,463  
Environmental Remediation 31,393
 32,885
 Environmental Remediation53,511  20,250  
Deferred Regulatory Costs 3,554
 1,554
 Deferred Regulatory Costs—  14,351  
Budget Billing - Customer Accounts 4,043
 3,347
 Budget Billing - Customer Accounts5,400  4,550  
Deferred Pension & Other Post Retirement Benefits 21,349
 34,432
 Deferred Pension & Other Post Retirement Benefits31,416  34,095  
Conservation Incentive Program 7,721
 11,846
Equity In Loss Of Affiliated Companies 1,377
 3,092
 Equity In Loss Of Affiliated Companies1,801  1,417  
Other 11,037
 14,414
 Other24,356  15,718  
Total Deferred Tax Liability $577,582
 $837,951
 Total Deferred Tax Liability$621,075  $579,428  
Deferred Tax Liability - Net $86,884
 $343,549
 Deferred Tax Liability - Net$92,166  $85,836  
    
SJG:    SJG:
Deferred Tax Assets:    Deferred Tax Assets:
Net Operating Loss and Tax Credits $73,785
 $102,290
 Net Operating Loss and Tax Credits$55,250  $60,986  
Deferred State tax 14,688
 24,574
Deferred State Tax Deferred State Tax20,352  16,754  
Provision for Uncollectibles 3,811
 5,170
 Provision for Uncollectibles3,939  3,776  
Gross Up of Excess Deferred Taxes 76,426
 —
Conservation Incentive Program Conservation Incentive Program1,991  1,701  
Income Taxes Recoverable Through Rates Income Taxes Recoverable Through Rates68,280  67,372  
Pension & Other Post Retirement Benefits 15,031
 17,264
 Pension & Other Post Retirement Benefits17,461  16,699  
Deferred Revenues 6,066
 7,696
 Deferred Revenues5,525  5,906  
Other 2,413
 3,573
Other2,486  2,599  
Total Deferred Tax Assets $192,220
 $160,567
Total Deferred Tax Assets$175,284  $175,793  
    
Deferred Tax Liabilities:    Deferred Tax Liabilities:
Book Versus Tax Basis of Property $386,642
 $532,330
 Book Versus Tax Basis of Property$418,059  $395,371  
Deferred Fuel Costs - Net 10,254
 2,052
 Deferred Fuel Costs - Net20,227  23,642  
Environmental Remediation 31,637
 33,573
 Environmental Remediation47,270  40,753  
Deferred Regulatory Costs 3,554
 1,554
 Deferred Regulatory Costs9,609  5,061  
Deferred Pension & Other Post Retirement Benefits 21,349
 34,432
 Deferred Pension & Other Post Retirement Benefits20,396  21,870  
Budget Billing - Customer Accounts 4,043
 3,347
 Budget Billing - Customer Accounts5,400  4,550  
Section 461 Prepayments 866
 1,147
 Section 461 Prepayments1,445  1,081  
Conservation Incentive Program 7,721
 11,846
Other 6,900
 9,694
Other10,515  9,351  
Total Deferred Tax Liabilities $472,966
 $629,975
Total Deferred Tax Liabilities$532,921  $501,679  
    
Deferred Tax Liability - Net $280,746
 $469,408
Deferred Tax Liability - Net$357,637  $325,886  

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SJG is included in the consolidated federal income tax return filed by SJI. The actual taxes, including credits, are allocated by SJI to its subsidiaries, generally on a separate return basis except for net operating loss and credit carryforwards. As of December 31, 20172019 and 2016,2018, there were no0 income taxes due to or from SJI.


As of December 31, 2017,2019, SJI has the following federal and state net operating loss carryforwards (in thousands):
Net Operating Loss Carryforwards
Expire in:FederalState
     2031$—  $15,104  
     203221,777  3,108  
     203357,363  18,557  
     2034106,899  12,779  
     203551,308  13,317  
     203672,199  165,032  
     203775,606  79,869  
     2038—  131,406  
     2039—  82,659  
     Indefinite16,792  —  
$401,944  $521,831  
  Net Operating Loss Carryforwards
Expire in: FederalState
     2031 $163,572
$45,866
     2032 42,988
19,356
     2033 56,007
35,271
     2034 105,763
28,853
     2035 49,572
9,956
     2036 72,199
181,189
     2037 96,326
74,175
  $586,427
$394,666



As of December 31, 2017,2019, SJI has the following investment tax credit carryforwards (in thousands):
Expire in:Investment Tax Credit Carryforward
     2030$11,628  
     203125,664  
     203232,031  
     203345,606  
     203437,699  
     203545,005  
     203611,744  
     2037636  
     203893  
$210,106  
Expire in: Investment Tax Credit Carryforward
     2030 $11,628
     2031 25,664
     2032 32,031
     2033 45,606
     2034 37,699
     2035 45,005
     2036 11,744
     2037 636
  $210,013


SJI has $1.2$0.6 million of federal alternative minimum tax credits which have no expiration date.

SJI and SJG also hashave research and development credits of $3.2$4.1 million thatand $2.9 million, respectively, which will expire between 2031 and 2035. 2038.

As of December 31, 20172019 and 2016,2018, SJG has total federal net operating loss carryforwards of $261.1$156.8 million and $263.0$200.0 million, respectively, that will expire between 20312035 and 2037. SJG has a state net operating loss carryforward of $208.8$246.0 million and $80.2$207.9 million that will expire between 2036 and 2037. SJG has research and development credits of $2.7 million which will expire between 2031 and 2035. 2038.

A valuation allowance is recorded when it is more likely than not that any of SJI's or SJG's deferred tax assets will not be realized. SJI and SJG believe that they will generate sufficient future taxable income to realize the income tax benefits related to their net deferred tax assets.



98

A reconciliation of the beginning and ending amount of unrecognized tax benefits for the years ended December 31, is as follows (in thousands):
SJI (includes SJG and all other consolidated subsidiaries): 2017 2016 2015SJI (includes SJG and all other consolidated subsidiaries):201920182017
Balance at January 1, $1,445
 $559
 $552
Balance at January 1,$1,147  $1,445  $1,445  
Increase as a result of tax positions taken in prior years —
 886
 7
 Increase as a result of tax positions taken in prior years419  —  —  
Decrease in prior year positions Decrease in prior year positions—  (298) —  
Balance at December 31, $1,445
 $1,445
 $559
Balance at December 31,$1,566  $1,147  $1,445  
      
SJG:      SJG:
Balance at January 1,  $1,361
 $559
 $552
Balance at January 1, $1,063  $1,361  $1,361  
Increase as a result of tax position taken in prior years —
 802
 7
Increase as a result of tax position taken in prior years41  —  —  
Decrease in prior year positions Decrease in prior year positions—  (298) —  
Balance at December 31, $1,361
 $1,361
 $559
Balance at December 31,$1,104  $1,063  $1,361  
 

The total unrecognized tax benefits reflected in the table above exclude $0.8 million of accrued interest and penalties asfor each of the years ended December 31, 20172019, 2018 and $0.7 million as of December 31, 2016 and 20152017 for both SJI and SJG. The amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate is not significant.  The Company's policy is to record interest and penalties related to unrecognized tax benefits as interest expense and other expense, respectively. These amounts were not significant in 2017, 20162019, 2018 or 2015.2017. The majority of the increased tax position in 20172019 is attributable to research and development credits. The Company does not anticipate any significant changes in the total unrecognized tax benefits within the next 12 months.


The unrecognized tax benefits are primarily related to an uncertainty of state income tax issues relating to the Company's nexus in certain states and tax credits. Federal income tax returns from 20132014 forward and state income tax returns from 2008 forward are open and subject to examination.




5.PREFERRED STOCK:
5. PREFERRED STOCK:
 
REDEEMABLE CUMULATIVE PREFERRED STOCK - SJI has 2,500,000 authorized shares of Preference Stock, no par value, which has not been issued.


6.COMMON STOCK:

6. COMMON STOCK:

The following shares were issued and outstanding at December 31 (See Note 1):31:


 201920182017
Beginning of Year85,506,218  79,549,080  79,478,055  
New Issuances During Year:   
Settlement of Equity Forward Sale Agreement6,779,661  —  —  
Stock-Based Compensation Plan108,276  67,308  71,025  
Public Equity Offering—  5,889,830  —  
End of Year92,394,155  85,506,218  79,549,080  
 2017 2016 2015
Beginning of Year79,478,055
 70,965,622
 68,334,860
New Issuances During Year: 
    
Dividend Reinvestment Plan—
 417,095
 2,604,424
Stock-Based Compensation Plan71,025
 45,338
 26,338
Public Equity Offering—
 8,050,000
 —
End of Year79,549,080
 79,478,055
 70,965,622


The par value ($($1.25 per share) of stock issued was recorded in Common Stock and the net excess over par value at December 31, 20172019 of approximately $2.7$184.6 million was recorded in Premium on Common Stock.

In May 2016, SJI issued and sold 8,050,000 shares of its common stock, par value $1.25 per share pursuant to a public offering, raising net proceeds of approximately $203.6 million. The net proceeds from this offering were or will be used for capital expenditures, primarily for regulated businesses, including infrastructure investments at its utility business.


There were 2,339,139 shares of SJG's common stock (par value $2.50 per share) outstanding as of December 31, 2017.2019. SJG did not issue any new shares during the period. SJI, through its a wholly-owned subsidiary SJIU, owns all of the outstanding common stock of SJG.


EARNINGS PER COMMON SHARE (EPS)
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Table of Contents
FORWARD SHARES - In the second quarter of 2018, SJI offered 12,669,491 shares of its common stock, par value $1.25 per share, at a public offering price of $29.50 per share. Of the offered shares, 5,889,830 shares were issued at closing. On January 15, 2019, SJI settled its equity forward sale agreement by physically delivering the remaining 6,779,661 shares of common stock and receiving net cash proceeds of approximately $189.0 million. The forward price used to determine cash proceeds received by SJI at settlement was calculated based on the initial forward sale price, as adjusted for underwriting fees, interest rate adjustments as specified in the equity forward agreement and any dividends paid on our common stock during the forward period.

CONVERTIBLE UNITS - In the second quarter of 2018, SJI issued and sold 5,750,000 Equity Units, initially in the form of Corporate Units, which included 750,000 Corporate Units pursuant to the underwriters’ option. Each Corporate Unit has a stated amount of $50 and is comprised of (a) a purchase contract obligating the holder to purchase from the Company, and for the Company to sell to the holder for a price in cash of $50, on the purchase contract settlement date, or April 15, 2021, subject to earlier termination or settlement, a certain number of shares of common stock; and (b) a 1/20, or 5%, undivided beneficial ownership interest in $1,000 principal amount of SJI’s 2018 Series A 3.70% Remarketable Junior Subordinated Notes due 2031. SJI will pay the holder quarterly contract adjustment payments at a rate of 3.55% per year on the stated amount of $50 per Equity Unit, in respect of each purchase contract, subject to the Company's right to defer these payments. The net proceeds, after amortization of the underwriting discounts, are recorded as Long-Term Debt on the consolidated balance sheets.

SJI's EPS — SJI's Basic EPS is based on the weighted-average number of common shares outstanding.  The incremental shares required for inclusion in the denominator for the diluted EPS calculation were 112,590123,021 and 195,139777,603 shares for the years ended December 31, 20162019 and 2015,2018, respectively. For the year ended December 31, 2017, incremental shares of 141,750 were not included in the denominator for the diluted EPS calculation because they would have an antidilutive effect on EPS. These shares relate to SJI’s restricted stock as discussed in Note 2.2, along with the impact of the Forward Shares and Convertible Units discussed above, accounted for under the treasury stock method.


DIVIDENDS PER SHARE - DividendsSJI's dividends per share were $1.10, $1.07$1.16, $1.13 and $1.02$1.10 for the years ended December 31, 2019, 2018 and 2017, 2016 and 2015, respectively. SJG did 0t declare or pay any dividends to SJI in 2019 or 2018. SJG's dividends per share paid to SJI were $8.55 for the year ended December 31, 2017.


DIVIDEND REINVESTMENT PLAN (DRP)DRP — SJI offers a DRP which allows participating shareholders to purchase shares of SJI common stock by automatic reinvestment of dividends or optional purchases. Prior to May 1, 2016, shares of common stock offered by the DRP had been issued directly by SJI from its authorized but unissued shares of common stock. SJI raised $10.8 million of equity capital through the DRP in 2016. Effective May 1, 2016, SJI switched to purchasingcurrently purchases shares on the open market to fund share purchases by DRP participants, and as a result SJI did not raise any equity capital through the DRP in 2019, 2018 or 2017. SJI does not intend to issue equity capital via the DRP in 2018.2020.



SJG RETAINED EARNINGS:


VariousThe Utilities are limited by their regulatory authorities on the amount of cash dividends or other distributions they are able to transfer to their parent, specifically of which could impact their capitalization structure. In addition, various loan agreements may contain potential restrictions regarding the amount of cash dividends or other distributions that SJGthe Utilities may pay on its common stock. As of December 31, 2017,2019, these loan restrictions did not affect the amount that may be distributed from SJG'sthe Utilities's retained earnings.


SJG declared and paid cash dividends of $20.0 million in 2017 to SJI. Cash dividends were not0t declared or paid by SJG to SJI in 2016. SJG declared and paid cash dividends of $40.8 million in 2015 to SJI.2019 or 2018. SJG received a $40.0 million and $65.0 million equity infusioncontribution from SJI in 2017 and 2016, respectively;2017; there was no0 equity infusioncontribution to SJG in 2015.2019 or 2018. Future equity contributions will occur on an as needed basis.


7.FINANCIAL INSTRUMENTS:

7. FINANCIAL INSTRUMENTS:

RESTRICTED INVESTMENTS —Marina is required to maintain escrow accounts related to ongoing capital projects. As of December 31, 2017 and 2016, the escrowed funds, including interest earned, totaled $0.3 million and $1.9 million, respectively, which are recorded in Restricted Investments on the consolidated balance sheets.

— SJI and SJG maintain margin accounts with selectedcertain counterparties to support their risk management activities.activities associated with hedging commodities. The balances required to be held in these margin accounts increase as the net value of the outstanding energy-related contracts with the respective counterparties decrease. As of December 31, 20172019 and 2016,2018, SJI's balances (including SJG) in these accounts totaled $31.6$22.0 million and $11.7$1.6 million, respectively, held by the counterparty,counterparties, which is recorded in Restricted Investments on the consolidated balance sheets. SJI also had balances held by SJRG as collateral as of December 31, 2018 of $7.9 million which was recorded in Accounts Payable on the consolidated balance sheets. As of December 31, 2017,2019 and 2018, SJG's balance held by the counterpartycounterparties totaled $2.9$4.0 million and was$1.3 million, respectively, which is recorded in Restricted Investments on the balance sheets. As of December 31, 2016, SJG's balance held by SJG as collateral was $3.6 million which was recorded in Accounts Payable - Other on the balance sheets.


100

The carrying amounts of the Restricted Investments for both SJI and SJG approximate their fair values at December 31, 20172019 and 2016,2018, which would be included in Level 1 of the fair value hierarchy (see Note 17).


The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts shown in the statement of cash flows (in thousands):


As of December 31, 2019
Balance Sheet Line ItemSJISJG
Cash and Cash Equivalents6,417  2,678  
Restricted Investments21,964  4,073  
   Total cash, cash equivalents and restricted cash shown in the statement of cash flows$28,381  $6,751  
  As of December 31, 2017
Balance Sheet Line Item SJISJG
Cash and Cash Equivalents 7,819
1,707
Restricted Investments 31,876
2,912
   Total cash, cash equivalents and restricted cash shown in the statement of cash flows $39,695
$4,619


As of December 31, 2018
Balance Sheet Line ItemSJISJG
Cash and Cash Equivalents30,030  1,984  
Restricted Investments1,649  1,278  
   Total cash, cash equivalents and restricted cash shown in the statement of cash flows$31,679  $3,262  

  As of December 31, 2016
Balance Sheet Line Item SJISJG
Cash and Cash Equivalents 18,282
1,359
Restricted Investments 13,628
32
   Total cash, cash equivalents and restricted cash shown in the statement of cash flows $31,910
$1,391
NOTES RECEIVABLE-AFFILIATES - See Note 3.


INVESTMENT IN AFFILIATES - During 2011, subsidiaries of Energenic, in which Marina has a 50% equity interest, entered into 20-year contracts to build, own and operate a central energy center and energy distribution system for a new hotel, casino and entertainment complex in Atlantic City, New Jersey. The complex commenced operations in April 2012, and as a result, Energenic subsidiaries began providing full energy services to the complex.

In June 2014, the parent company of the hotel, casino and entertainment complex filed petitions in U. S. Bankruptcy Court to facilitate a sale of substantially all of its assets. The complex ceased normal business operations in September 2014. Energenic subsidiaries continued to provide limited energy services to the complex during the shutdown period under a temporary agreement with the trustee. The hotel, casino and entertainment complex was sold in April 2015. As of December 31, 2015, the Energenic subsidiaries were providing limited services to the complex under a short-term agreement with the new owner. However, the Energenic subsidiaries had not been able to secure a permanent or long-term energy services agreement with the new owner.

In 2015, management of the Company and Energenic evaluated the carrying value of the investment in this project and a related note receivable. Based on the inability of the Energenic subsidiaries to secure a permanent or long-term energy services agreement, the Company recorded a $7.7 million (net of tax) non-cash charge to earnings during the second quarter of 2015 due to the reduction in the carrying value of the investment in this project recorded by Energenic. This charge is included in Equity in Loss of Affiliated Companies for the year ended December 31, 2015 on the statements of consolidated income.
The central energy center and energy distribution system owned by the Energenic subsidiaries was financed in part by the issuance of bonds during 2011. These bonds were collateralized primarily by certain assets of the central energy center and revenue from the energy services agreement with the hotel, casino and entertainment complex. During 2015, due to the cessation of normal business operations of the complex and the inability of the Energenic subsidiaries to meet its obligations under the bonds, the trustee for the bondholders filed suit to foreclose on certain assets of the central energy center. In November 2015 during settlement discussions, the bondholders alleged, among other things, that they were entitled to recover from Energenic itself, any amounts owed under the bonds that were not covered by the collateral, including principal, interest and attorney’s fees. The bondholders’ assertion was based on inconsistent language in the bond documents. In January 2016, Energenic and certain subsidiaries reached a multi-party settlement with the bondholders. This agreement resolves all outstanding litigation and transfers ownership of the bondholders’ collateral to the owners of the entertainment complex. The Company's share of this settlement was $7.5 million, which was accrued by Energenic as of December 31, 2015 and paid in 2016. The Company entered into agreements with its insurance carrier and external legal advisors to recover, net of legal costs, approximately $7.0 million of costs associated with the bondholder settlement discussed above. The Company received $2.1 million in the second quarter of 2016, which is included in Other Income on the statements of consolidated income for the year ended December 31, 2016, and $5.3 million was received in the third quarter of 2016 and is included in Equity in Earnings of Affiliated Companies on the statements of consolidated income for the year ended December 31, 2016, as the loss recorded in the prior year was included in this line item on the statements of consolidated income for the year ended December 31, 2015.

As of December 31, 2017, SJI had approximately $13.6 million included in Notes Receivable - Affiliate on the consolidated balance sheets, due from Energenic, which is secured by its cogeneration assets for energy service projects. This note is subject to a reimbursement agreement that secures reimbursement for SJI, from its joint venture partner, of a proportionate share of any amounts that are not repaid.

Management will continue to monitor the situation surrounding the cogeneration assets and will evaluate the carrying value of the investment and the note receivable as future events occur.

NOTE RECEIVABLE - During 2017, SJI received the remaining balance in connection with an outstanding note receivable with a third party. Cash proceeds received in 2017 were $22.9 million.

LONG-TERM RECEIVABLES — SJG provides financing to customers for the purpose of attracting conversions to natural gas heating systems from competing fuel sources.  The terms of these loans call for customers to make monthly payments over periods ranging from five to ten years, with no interest.  The carrying amounts of such loans were $7.0$3.7 million and $9.5$5.3 million as of December 31, 20172019 and 2016,2018, respectively. The current portion of these receivables is reflected in Accounts Receivable and the non-current portion is reflected in Contract Receivables on the consolidated balance sheets. The carrying amounts noted above are net of unamortized discounts resulting from imputed interest in the amount of $0.7$0.5 million and $0.9$0.7 million as of December 31, 20172019 and 2016,2018, respectively. The annualannualized amortization to interest is not material to SJI's or SJG's consolidated financial statements. In addition, as part of EET/EEP programs (see Note 10), SJG provides funding to customers to upgrade equipment for the purpose of promoting energy efficiency. The terms of these loans range from two to ten years. The carrying amounts of such loans were $33.5 million and $26.3 million as of December 31, 2019 and 2018, respectively. On the consolidated balance sheets of SJI and SJG, $4.6 million and $3.6 million of the current portion of EET/EEP loans receivable is reflected in Accounts Receivable as of December 31, 2019 and 2018, respectively, and $28.9 million and $22.7 million of the non-current portion is reflected in Contract Receivables as of December 31, 2019 and 2018, respectively.   The carrying amounts of these receivables approximate their fair value at December 31, 20172019 and 2016,2018, which would be included in Level 2 of the fair value hierarchy (see Note 17).


CREDIT RISK - As of December 31, 2017,2019, SJI had approximately $6.5$15.4 million, or 13.5%25.7%, of current and noncurrent Derivatives–Energy Related Assets transacted with one counterparty. This counterparty is2 counterparties. These counterparties are investment-grade rated with a rating of BBB+.rated.


FINANCIAL INSTRUMENTS NOT CARRIED AT FAIR VALUE - The fair value of a financial instrument is the market price to sell an asset or transfer a liability at the measurement date. The carrying amounts of SJI's and SJG's financial instruments approximate their fair values at December 31, 20172019 and 2016,2018, except as noted below.
•For Long-Term Debt, in estimating the fair value, SJI and SJG use the present value of remaining cash flows at the balance sheet date. SJI and SJG based the estimates on interest rates available at the end of each period for debt with similar terms and maturities (Level 2 in the fair value hierarchy, see Note 17).

•The estimated fair values of SJI's long-term debt (which includes SJG and all consolidated subsidiaries), including current maturities, as of December 31, 20172019 and 2016,2018, were $1,216.1 million$2.73 billion and $1,080.8 million,$2.91 billion, respectively. The carrying amounts of SJI's long-term debt, including current maturities, as of December 31, 20172019 and 2016,2018, were $1,186.8 million$2.54 billion and $1,039.9 million,$2.84 billion, respectively. TheSJI's carrying amounts as of December 31, 2017 and 20162019 are net of unamortized debt issuance costs of $17.4$25.5 million and $7.6 million, respectively.unamortized debt discounts of $5.3 million. SJI's carrying amounts as of December 31, 2018 are net of unamortized debt issuance costs of $27.0 million.


101

•The estimated fair values of SJG's long-term debt, including current maturities, as of December 31, 20172019 and 2016,2018, were $838.5$915.2 million and $673.1$895.1 million, respectively. The carrying amountamounts of SJG's long-term debt, including current maturities, as of December 31, 20172019 and 2016, was $821.92018, were $965.1 million and $639.1$893.4 million, respectively. The carrying amounts as of December 31, 20172019 and 20162018 are net of unamortized debt issuance costs of $7.3$6.3 million and $6.0$6.8 million, respectively.


OTHER FINANCIAL INSTRUMENTS - The carrying amounts of SJI's and SJG's other financial instruments approximate their fair values at December 31, 20172019 and 2016.2018.


8.SEGMENTS OF BUSINESS:

8. SEGMENTS OF BUSINESS:

SJI operates in several different reportable operating segments which reflect the financial information regularly evaluated by the chief operating decision maker.CODM. These segments are as follows:


Gas•SJG utility operations (SJG) consist primarily of natural gas distribution to residential, commercial and industrial customers. The resultcustomers in southern New Jersey.

•ETG utility operations consist primarily of SJG only are includednatural gas distribution to residential, commercial and industrial customers in this operating segment.northern and central New Jersey.


•ELK utility operations consist of natural gas distribution to residential, commercial and industrial customers in Maryland. As discussed in Note 1, SJI entered into an agreement to sell ELK to a third party, with expected closing in the middle of 2020.

•Wholesale energy operations include the activities of SJRG and SJEX.

SJE is involved in both retail•Retail gas and retailother operations at SJE included natural gas acquisition and transportation service business lines. This business was sold on November 30, 2018.

•Retail electric activities.
◦Retail gas and other operations include natural gas acquisition and transportation service business lines.
◦Retail electric operations consist of electricity acquisition and transportation to commercial, industrial and residential customers.

operations at SJE consist of electricity acquisition and transportation to commercial, industrial and residential customers.

•On-site energy production consists of Marina's thermal energy facilityMTF and ACB, which, as disclosed in Notes 1 and 22 to the consolidated financial statements, were sold on February 18, 2020. This segment also includes other energy-related projects, including three remaining solar projects. Also included in this segment are the activities of ACB, ACLE, BCLE, SCLE, SXLE, along with MCS, NBS and SBS.SBS, which were sold in October 2018 .


•Appliance service operations includes SJESP, which serviced residential and small commercial HVAC systems, installed small commercial HVAC systems, provided plumbing services and serviced appliances under warranty via a subcontractor arrangement as well as on a time and materials basis. On September 1, 2017, SJESP sold certain assets of its residential and small commercial HVAC and plumbing business to a third party. SJESP will receivereceives commissions paid on service contracts from thea third party on a go forward basis. This transaction did not have a material impact on the consolidated financial statements.party.


•Midstream was formed to invest in infrastructure and other midstream projects, including a current project to build a natural gas pipeline in Pennsylvania and New Jersey.


Costs incurred•Corporate & Services segment includes costs related to the agreement to acquire Elizabethtown Gas and Elkton GasAcquisition, along with other unallocated costs. Also included in this segment are recorded in the Corporate & Services segment.results of SJEI.

•Intersegment represents intercompany transactions between the above SJI consolidated entities.
  
SJI groups its utility businesses under its wholly-owned subsidiary SJIU. This group consists of gas utility operations of SJG, ETG and ELK. SJI groups its nonutility operations into twoseparate categories: Energy Group and Energy Services. Energy Group includes wholesale energy, retail gas and other, and retail electric operations. Energy Services includes on-site energy production and appliance service operations. The accounting policies of the segments are the same as those described in the summary of significant accounting policies.  Intersegment sales and transfers are treated as if the sales or transfers were to third parties at current market prices.



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Information about SJI’s operations in different reportable operating segments is presented below (in thousands):. The results for ETG and ELK utility operations are included from the date of the Acquisition, July 1, 2018; the results for AEP are included in the Corporate & Services segment from the acquired date of August 31, 2019. Further, the results and balances for On-Site Energy Production and Retail Gas and Other Operations are impacted by the sales of solar assets and the retail gas business of SJE, respectively.


 201920182017
Operating Revenues:
SJI Utilities:
   SJG Utility Operations$569,226  $548,000  $517,254  
   ETG Utility Operations325,133  125,604  —  
   ELK Utility Operations7,949  3,302  —  
        Subtotal SJI Utilities902,308  676,906  517,254  
Energy Group:
    Wholesale Energy Operations607,093  636,005  352,613  
Retail Gas and Other Operations—  101,543  111,048  
Retail Electric Operations81,193  176,945  179,534  
   Subtotal Energy Group688,286  914,493  643,195  
Energy Services:
On-Site Energy Production48,748  72,374  99,517  
Appliance Service Operations2,042  1,957  6,488  
Subtotal Energy Services50,790  74,331  106,005  
Corporate & Services44,511  51,000  45,024  
Subtotal1,685,895  1,716,730  1,311,478  
Intersegment Sales(57,269) (75,392) (68,410) 
Total Operating Revenues$1,628,626  $1,641,338  $1,243,068  


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201920182017
2017 2016 2015
Operating Revenues:     
Gas Utility Operations$517,254
 $461,055
 $534,290
Operating Income/(Loss):Operating Income/(Loss):   
SJI Utilities:SJI Utilities:
SJG Utility Operations SJG Utility Operations$147,494  $132,688  $138,875  
ETG Utility Operations ETG Utility Operations69,315  2,164  —  
ELK Utility Operations ELK Utility Operations721  (256) —  
Subtotal SJI Utilities Subtotal SJI Utilities217,530  134,596  138,875  
Energy Group:     Energy Group:
Wholesale Energy Operations352,613
 220,707
 129,098
 Wholesale Energy Operations439  87,895  (36,815) 
Retail Gas and Other Operations111,048
 92,371
 87,198
Retail Gas and Other Operations—  (8,721) (2,468) 
Retail Electric Operations179,534
 182,540
 150,049
Retail Electric Operations(4,985) (359) 3,620  
Subtotal Energy Group643,195
 495,618
 366,345
 Subtotal Energy Group(4,546) 78,815  (35,663) 
Energy Services:     Energy Services:
On-Site Energy Production99,517
 94,375
 63,665
On-Site Energy Production(4,248) (88,230) (83,654) 
Appliance Service Operations6,488
 7,898
 11,186
Appliance Service Operations2,108  1,818  217  
Subtotal Energy Services106,005
 102,273
 74,851
Subtotal Energy Services(2,140) (86,412) (83,437) 
Corporate & Services45,024
 35,147
 31,156
Subtotal1,311,478
 1,094,093
 1,006,642
Intersegment Sales(68,410) (57,593) (47,074)
Total Operating Revenues$1,243,068
 $1,036,500
 $959,568
MidstreamMidstream(154) (292) —  
Corporate and ServicesCorporate and Services(9,485) (25,962) (10,932) 
Total Operating IncomeTotal Operating Income$201,205  $100,745  $8,843  
Depreciation and Amortization:Depreciation and Amortization:   
SJI Utilities:SJI Utilities:
SJG Utility Operations SJG Utility Operations$93,910  $82,622  $71,654  
ETG Utility Operations ETG Utility Operations29,051  13,580  —  
ELK Utility Operations ELK Utility Operations469  222  —  
Subtotal SJI Utilities Subtotal SJI Utilities123,430  96,424  71,654  
Energy Group:Energy Group:
Wholesale Energy Operations Wholesale Energy Operations89  105  125  
Retail Gas and Other OperationsRetail Gas and Other Operations—  279  323  
Subtotal Energy Group Subtotal Energy Group89  384  448  
Energy Services:Energy Services:
On-Site Energy ProductionOn-Site Energy Production4,591  23,123  46,928  
Appliance Service OperationsAppliance Service Operations—  —  153  
Subtotal Energy ServicesSubtotal Energy Services4,591  23,123  47,081  
Corporate and ServicesCorporate and Services5,275  12,983  4,303  
Total Depreciation and AmortizationTotal Depreciation and Amortization$133,385  $132,914  $123,486  
Interest Charges:Interest Charges:   
SJI Utilities:SJI Utilities:
SJG Utility Operations SJG Utility Operations$31,654  $28,011  $24,705  
ETG Utility Operations ETG Utility Operations27,352  10,478  —  
ELK Utility Operations ELK Utility Operations8  4  —  
Subtotal SJI Utilities Subtotal SJI Utilities59,014  38,493  24,705  
Energy Group:Energy Group:
Wholesale Energy Operations Wholesale Energy Operations—  —  3,150  
Retail Gas and Other OperationsRetail Gas and Other Operations—  487  250  
Subtotal Energy Group Subtotal Energy Group—  487  3,400  
Energy Services:Energy Services:
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 2017 2016 2015
Operating Income: 
  
  
Gas Utility Operations$136,487
 $122,455
 $119,585
Energy Group:     
    Wholesale Energy Operations(36,815) 41,667
 35,024
Retail Gas and Other Operations(2,468) 4,680
 (3,218)
Retail Electric Operations3,620
 7,007
 1,042
   Subtotal Energy Group(35,663) 53,354
 32,848
Energy Services:     
On-Site Energy Production(83,654) 13,301
 2,027
Appliance Service Operations217
 582
 468
Subtotal Energy Services(83,437) 13,883
 2,495
Corporate and Services(12,977) (416) 1,966
Total Operating Income$4,410
 $189,276
 $156,894

     
Depreciation and Amortization: 
  
  
Gas Utility Operations$71,654
 $63,901
 $58,668
Energy Group:     
    Wholesale Energy Operations125
 484
 435
Retail Gas and Other Operations323
 337
 161
   Subtotal Energy Group448
 821
 596
Energy Services:     
On-Site Energy Production46,928
 43,395
 30,242
Appliance Service Operations153
 301
 316
Subtotal Energy Services47,081
 43,696
 30,558
Corporate and Services4,303
 1,400
 1,220
Total Depreciation and Amortization$123,486
 $109,818
 $91,042

     
Interest Charges: 
  
  
Gas Utility Operations$24,705
 $17,875
 $19,906
Energy Group:     
    Wholesale Energy Operations3,150
 —
 441
Retail Gas and Other Operations250
 350
 185
   Subtotal Energy Group3,400
 350
 626
Energy Services:     
On-Site Energy Production16,838
 11,961
 8,169
Corporate and Services24,804
 12,118
 11,822
Subtotal69,747
 42,304
 40,523
Intersegment Borrowings(15,728) (10,855) (8,901)
Total Interest Charges$54,019
 $31,449
 $31,622
On-Site Energy Production8,637  15,364  16,838  
Midstream2,262  1,966  985  
Corporate and Services57,716  54,107  23,819  
Subtotal127,629  110,417  69,747  
Intersegment Borrowings  (13,152) (20,121) (15,728) 
Total Interest Charges$114,477  $90,296  $54,019  



 201920182017
Income Taxes:
SJI Utilities:
   SJG Utility Operations$32,822  $26,413  $45,700  
   ETG Utility Operations7,761  (3,086) —  
   ELK Utility Operations146  (70) —  
        Subtotal SJI Utilities40,729  23,257  45,700  
Energy Group:
    Wholesale Energy Operations574  22,473  (14,720) 
Retail Gas and Other Operations—  (2,360) (544) 
Retail Electric Operations(935) (101) 1,480  
   Subtotal Energy Group(361) 20,012  (13,784) 
Energy Services:
On-Site Energy Production(3,308) (26,397) (39,262) 
Appliance Service Operations627  534  4  
Subtotal Energy Services(2,681) (25,863) (39,258) 
Midstream(135) (190) (41) 
Corporate and Services(16,491) (16,655) (17,554) 
Total Income Taxes$21,061  $561  $(24,937) 
Property Additions:   
SJI Utilities:
   SJG Utility Operations$264,235  $253,617  $253,545  
   ETG Utility Operations (1)197,457  90,259  —  
   ELK Utility Operations (1)2,762  1,820  —  
        Subtotal SJI Utilities464,454  345,696  253,545  
Energy Group:
    Wholesale Energy Operations7  34  14  
Retail Gas and Other Operations4  495  889  
   Subtotal Energy Group11  529  903  
Energy Services:
On-Site Energy Production229  2,686  12,588  
Appliance Service Operations—  —  260  
Subtotal Energy Services229  2,686  12,848  
Midstream46  119  218  
Corporate and Services1,554  1,826  2,233  
Total Property Additions$466,294  $350,856  $269,747  
 2017 2016 2015
      
Income Taxes:     
Gas Utility Operations$45,700
 $39,366
 $36,945
Energy Group:     
    Wholesale Energy Operations(14,720) 15,882
 14,410
Retail Gas and Other Operations(544) 2,118
 (978)
Retail Electric Operations1,480
 2,862
 426
   Subtotal Energy Group(13,784) 20,862
 13,858
Energy Services:     
On-Site Energy Production(39,262) (6,353) (49,225)
Appliance Service Operations4
 232
 186
Subtotal Energy Services(39,258) (6,121) (49,039)
Corporate and Services(17,595) 44
 (404)
Total Income Taxes$(24,937) $54,151
 $1,360
      
Property Additions (See Note 1):     
Gas Utility Operations$253,545
 $228,275
 $218,260
Energy Group:     
    Wholesale Energy Operations14
 7
 382
Retail Gas and Other Operations889
 1,642
 2,053
   Subtotal Energy Group903
 1,649
 2,435
Energy Services:     
On-Site Energy Production (1)12,588
 38,193
 139,018
Appliance Service Operations260
 431
 379
Subtotal Energy Services12,848
 38,624
 139,397
Midstream218
 505
 —
Corporate and Services2,233
 636
 1,902
Total Property Additions$269,747
 $269,689
 $361,994


(1) The property additions for On-Site Energy ProductionETG Utility Operations and ELK Utility Operations in 2016 and 20152018 do not include the approximately $5.6$1.077 billion and $12.3 million, and $40.9 millionrespectively, of Property, Plant and Equipment obtained through the acquisition of eight Energenic projectsAcquisition as discussed in Note 3.20.



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20192018
2017 2016
Identifiable Assets (See Note 1):   
Gas Utility Operations$2,865,974
 $2,551,923
Identifiable Assets:Identifiable Assets:  
SJI Utilities:SJI Utilities:
SJG Utility Operations SJG Utility Operations$3,348,555  $3,118,236  
ETG Utility Operations ETG Utility Operations2,458,846  2,148,175  
ELK Utility Operations ELK Utility Operations21,723  16,482  
Subtotal SJI Utilities Subtotal SJI Utilities5,829,124  5,282,893  
Energy Group:   Energy Group:
Wholesale Energy Operations208,785
 233,019
 Wholesale Energy Operations195,576  266,417  
Retail Gas and Other Operations56,935
 52,729
Retail Gas and Other Operations—  12,736  
Retail Electric Operations34,923
 41,280
Retail Electric Operations30,351  39,345  
Subtotal Energy Group300,643
 327,028
 Subtotal Energy Group225,927  318,498  
Energy Services:   Energy Services:
On-Site Energy Production582,587
 767,710
On-Site Energy Production154,021  195,329  
Appliance Service Operations1,338
 2,879
Appliance Service Operations—  —  
Subtotal Energy Services583,925
 770,589
Subtotal Energy Services154,021  195,329  
Discontinued Operations1,757
 1,756
Discontinued Operations1,766  1,777  
Midstream63,112
 26,636
Midstream83,517  72,333  
Corporate and Services711,038
 623,159
Corporate and Services403,170  387,482  
Intersegment Assets(661,363) (570,524)Intersegment Assets(332,185) (301,735) 
Total Identifiable Assets$3,865,086
 $3,730,567
Total Identifiable Assets$6,365,340  $5,956,577  



9. LEASES:


SJI and SJG (collectively, the "Company" for purposes of Note 9) is a lessee for the following classes of underlying assets: equipment, real estate (land and building), and fleet vehicles. The Company evaluates its contracts for the purpose of determining whether it is, or contains, a lease at its inception based on whether or not the contract grants the Company the use of a specifically identified asset for a period of time, as well as whether the contract grants the Company both the right to direct the use of that asset and receive the significant economic benefits of the asset. SJI's and SJG's real estate leases, which are comprised primarily of office space and payment centers, represent approximately 81% and 43%, respectively, of operating lease liabilities and generally have a lease term between 5 and 15 years. The remaining operating leases primarily consist of fleet vehicles (SJI only), communication towers, and general office equipment, each with various lease terms ranging between 3 and 25 years. The majority of our leases are comprised of fixed lease payments, with a portion of the Company’s real estate, fleet vehicles, and office equipment leases including lease payments tied to levels of production, maintenance and property taxes, which may be subject to variability. The Company does not have any finance leases. The Company also evaluates contracts in which it is the owner of an underlying asset in the same manner as if it is a lessee, to determine if it should be considered the lessor of that asset. SJI has one contract where it is considered the lessor, see "MTF" below; SJG is not considered the lessor of any assets.

As a practical expedient permitted under Topic 842, the Company has elected to account for the lease and non-lease components as a single lease component for leases where it is a lessee. Lease payments, which may include lease components, non-lease components and non-components, are included in the measurement of the Company’s lease liabilities to the extent that such payments are either fixed amounts or variable amounts that depend on a rate or index as stipulated in the lease contract. The Company discounts its lease liability using an estimated incremental borrowing rate computed based on its existing term loan facility adjusted for lease term. On January 1, 2019, the discount rate used on existing leases at adoption was determined using the remaining lease term and available data as of that date based on the Company's collateralized incremental interest rate to borrow over a comparable term. For new or modified leases starting in 2019, the discount rate is determined using available data at lease commencement (for new leases) or the modification date (modified leases), based on its collateralized incremental interest rate to borrow over the lease term, including any reasonably certain renewal periods.


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Some of its lease agreements, primarily related to real estate, include Company options to either extend and/or early terminate the lease, the costs of which are included in our lease liability to the extent that such options are reasonably certain of being exercised. Leases with renewal options allow the Company to extend the lease term typically between 1 and 5 years. When determining the lease term, renewal options reasonably certain of being exercised are included in the lease term. When determining if a renewal option is reasonably certain of being exercised, the Company considers several economic factors, including the significance of leasehold improvements incurred on the property, whether the asset is difficult to replace, underlying contractual obligations, or specific characteristics unique to that particular lease that would make it reasonably certain that we would exercise such option. Renewal options were generally not included in the lease term for the Company’s existing leases. The Company does not generally enter into leases involving the construction or design of the underlying asset, and nearly all of the assets we lease are not specialized in nature. Our lease agreements generally do not include restrictions, financial covenants or residual value guarantees.

As stated in Note 1, SJI and SJG had $3.1 million and $0.5 million, respectively, of right-of-use assets upon adoption of Topic 842 on January 1, 2019, with lease liabilities of the same amount. As of December 31, 2019, SJI recognized right-of-use assets and lease liabilities of $1.9 million each for operating leases. The lease liability is comprised of approximately $1.5 million of real estate leases, $0.3 million of equipment leases and $0.1 million of fleet vehicle leases. As of December 31, 2019, SJG recognized right-of-use assets and lease liabilities of $0.3 million each for operating leases. The lease liability is comprised of approximately $0.2 million of equipment leases and $0.1 million of real estate leases. SJI and SJG recorded the right-of-use assets in Other Noncurrent Assets and the lease liabilities in Other Current and Noncurrent Liabilities (as shown in the table below) on the consolidated balance sheets as of December 31, 2019.

The maturity of the Company’s operating lease liabilities as of December 31, 2019 is as follows (in thousands):
As of December 31, 2019
SJI ConsolidatedSJG
20201,209  $153  
2021376  39  
2022190  21  
202334  19  
202412  12  
Thereafter105  102  
Total lease payments1,926  346  
Less imputed interest75  $33  
Total lease liabilities$1,851  $313  
Included in the consolidated balance sheets
Current lease liabilities (included in Other Current Liabilities)1,170  $146  
Long-term lease liabilities (included in Other Noncurrent Liabilities)681  $167  
Total lease liabilities$1,851  $313  

The total operating lease cost for SJI and SJG was $3.1 million and $0.2 million, respectively, during the year ended December 31, 2019. Short-term lease costs were immaterial for both SJI and SJG. Neither SJI nor SJG had any sublease income during the year ended December 31, 2019. Cash paid for amounts included in the measurement of lease liabilities for SJI and SJG were $1.7 million and $0.2 million, respectively, during the year ended December 31, 2019.

Neither SJI nor SJG have leases with related parties or leveraged lease arrangements. There are no leases that have not yet commenced but that create significant rights and obligations.

SJI had $1.3 million of variable lease payments pertaining to leased back assets during the year ended December 31, 2019, respectively. As discussed in Note 1 under "Agreement to Sell Solar Assets," SJI has solar assets that are being leased back from the buyer; these assets were leased back in 2018 and were treated as operating leases. As per the adoption of the "package of expedients" discussed in Note 1, SJI is not required to reassess under Topic 842 the Company’s prior conclusions about lease identification or classification.

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The following summarizes our contractual obligations for operating leases and their applicable payment due dates, as of December 31, 2018 under ASC Topic 840, prior to the implementation of ASC 842:

TotalUp to 1 yearYears 2&3Years 4&5More than 5 years
SJI Consolidated1,885  838  916  131  —  
SJG175  56  112  7  —  

Supplemental Non-Cash Disclosures

The weighted average remaining lease term for SJI's operating leases is 2.7 years at a weighted average discount rate of 3.0%.

The weighted average remaining lease term for SJG's operating leases is 7.2 years at a weighted average discount rate of 3.0%.

MTF

As of December 31, 2019, Marina iswas considered to be the lessor of certain thermal energy generating property and equipment under an operating lease which expireswas set to expire in May 2027. As of December 31, 20172019 and 2016,2018, the carrying costs of this property and equipment under operating lease was $74.2$68.9 million and $75.9$71.5 million, respectively (net of accumulated depreciation of $34.5$40.6 million and $31.4$37.7 million , respectively), and is included in Nonutility Property and EquipmentAssets Held for Sale in the consolidated balance sheets.
Minimum As discussed in Notes 1 and 22, MTF was sold to a third party buyer in February 2020, and as a result, Marina no longer is the lessor of this property, and no longer has future rentals or commitments.


10. RATES AND REGULATORY ACTIONS:

SJG and ETG are subject to be received on this operating lease of propertythe rules and equipment as of December 31, 2017 for eachregulations of the next five years and in the aggregate are (in thousands):
Year ended December 31, 
2018$5,396
20195,396
20205,396
20215,396
20225,396
Thereafter23,834
Total minimum future rentals50,814
Minimum future rentals do not include additional amounts to be received based on actual use of the leased property.


10.RATES AND REGULATORY ACTIONS:

BASE RATES - SJGBPU. ELK is subject to the rules and regulations of the BPU.  MPSC.


SJG:

Rate Cases - In January 2017, SJG filed a base rate case with the BPU to increase its base rates in order to obtain a return on new capital investments made by SJG since the settlement of its last base rate case in 2014. In October 2017, SJG settled its base rate case, pursuant to which the BPU granted SJG a base rate increase, effective November 1, 2017, of $39.5 million, which was predicated in part upon a 6.80% rate of return on rate base that included a 9.60% return on common equity. The BPU Order allows SJG to recover revenues associated with certain infrastructure and system improvement investments made and the related expenses incurred since the approval of its previous base rate case proceeding in September 2014.

RATE MECHANISMS - Pursuant to our AIRP extension order in 2016, SJG is required to file a base rate case no later than November 2020. SJG expects to file a base rate case in early 2020.

SJG's tariff, a schedule detailing the terms, conditions and rate information applicable to its various types of natural gas service, as approved by the BPU, has several primary rate mechanisms as discussed in detail below:
 
Basic Gas Supply Service (BGSS)BGSS Clause - The BGSS price structure allows SJG to recover all prudently incurred gas costs. Changes to BGSS charges to customers can beoccur either monthly or periodic (annual)periodically (annually). Monthly changes in BGSS charges are applicable to large use customers and are referred to as monthly because the rate changes on a monthly basis pursuant to a BPU-approved formula based on commodity market prices. Periodic changes in BGSS charges are applicable to lower usage customers, which include all of SJG's residential customers, and those rates are evaluated at least annually by the BPU. However, to some extent, more frequent rate changes to the periodic BGSS are allowed. SJG collects gas costs from customers on a forecasted basis and defers periodic over/under recoveries to the following BGSS year, which runs from October 1 through September 30. If SJG is in a net cumulative undercollected position, gas costs deferrals are reflected on the balance sheet as a regulatory asset. If SJG is in a net cumulative overcollected position, amounts due back to customers are reflected on the balance sheet as a regulatory liability. SJG pays interest on net overcollected BGSS balances at the rate of return on rate base utilized by the BPU to set rates in the last base rate proceeding.



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For the preceding three years, regulatory actions regarding the BGSS were as follows:


June 2015 - SJG filed its annual BGSS filing with the BPU, requesting a $28.4 million decrease in gas cost recoveries.
September 2015 - The BPU issued an Order approving, on a provisional basis, SJG’s request for a $28.4 million decrease in gas cost recoveries.
January 2016 - SJG provided a BGSS bill credit of approximately $20.0 million to its residential and small commercial customers. This credit was in addition to the overall rate reduction that was approved by the BPU and took effect in 2015.
June 2016 - SJG filed its annual BGSS filing with the BPU, requesting a $47.1 million decrease in gas cost recoveries.
September 2016 - The BPU issued an Order approving, on a provisional basis, SJG’s request for a $47.1 million decrease in gas cost recoveries, effective October 2016.
December 2016 - SJG provided a BGSS bill credit of approximately $10.0 million to its residential and small commercial customers. The credit was in addition to the overall rate reduction that was approved by the BPU and took effect in October 2016.
•April 2017 - SJG provided a BGSS bill credit of approximately $8.0 million to its residential and small commercial customers. The credit was in addition to the overall rate reduction that was approved by the BPU and took effect in October 2016.
•2017-2018 BGSS year - In June 2017, - SJG filed its annual BGSS filing with the BPU, requesting a $4.7 million decrease in gas cost recoveries.
September 2017 - TheThis request was approved by the BPU, issued an Order approving, on a provisional basis, SJG’sin September 2017, effective October 2017, and was approved in final form in May 2018.
•2018-2019 BGSS year - In September 2018, the BPU approved, on a provisional basis, SJG's request for a $4.7$65.5 million increase in the gas cost recoveries, effective October 1, 2018. The matter was thereafter referred to the Office of Administrative Law for further proceedings.
◦December 2018 - SJG submitted a notice of intent to self-implement a BGSS rate adjustment based on a 5% increase of the monthly bill of a typical residential customer; that adjustment took effect on February 1, 2019.
◦May 2019 - The BPU authorized SJG to spread the $65.5 million recovery of gas costs over a 2-year period, resulting in a reduction in the BGSS rate effective May 15, 2019, and a one-time bill credit of approximately $24.0 million to adjust amounts collected to date to the 2-year recovery period.
•2019-2020 BGSS year - In June 2019, SJG filed its annual BGSS filing with the BPU requesting a $27.6 million decrease in gas cost recoveries, associated withwhich the 2017-2018BPU approved, on a provisional basis, in September 2019, effective October 1, 2019.

SJG's next filing for the 2020-2021 BGSS year effective October 2017.will include the amounts disclosed related to SJG in Note 15 pertaining to a closed legal proceeding related to a gas supply contract.


Conservation Incentive Program (CIP)CIP - The primary purpose of the CIP is to promote conservation efforts, without negatively impacting financial stability, and to base SJG's profit margin on the number of customers rather than the amount of natural gas distributed to customers.  Each CIP year begins October 1 and ends September 30 of the subsequent year. On a monthly basis during the CIP year, SJG records adjustments to earnings based on weather and customer usage factors, as incurred. Subsequent to each year, SJG makes filings with the BPU to review and approve amounts recorded under the CIP. BPU-approved cash inflows or outflows generally will not begin until the next CIP year.
 
For the preceding three years, regulatory actions regarding the CIP were as follows:


June 2015•2017-2018 CIP year - SJG filed its annual CIP filing with the BPU, requesting a decrease in revenues of $11.3 million, which includes a $8.8 million decrease in non-weather related revenues and a $2.5 million decrease in weather related revenues.
September 2015 - The BPU issued an Order approving, on a provisional basis, the 2015-2016 CIP rates filed in June 2015, effective October 1, 2015.

June 2016 - SJG filed its annual CIP filing with the BPU, requesting a $46.5 million increase in revenues, which includes a $9.9 million increase in non-weather related revenues and a $36.6 million increase in weather related revenues.
September 2016 - The BPU issued an Order approving, on a provisional basis, the 2016-2017 CIP rates filed in June 2016, effective October 2016.
In June 2017, - SJG filed its annual CIP filing with the BPU requesting a $0.2 million increase in revenues, which included a $1.1 million increase in non-weather related revenues and a $0.9 million decrease in weather related revenues.
This request was approved by the BPU, on a provisional basis, in September 2017 - The BPU issued an Order approving the 2017-2018and was approved in final form in May 2018.
•2018-2019 CIP Year rates filed in June 2017, effective October 2017.

Accelerated Infrastructure Replacement Program (AIRP)year - In February 2013, the BPU issued an Order approving a $141.2 million program to replace cast iron and unprotected bare steel mains and services over a four-year period, with annual investments of approximately $35.3 million. Pursuant to the Order, AIRP investments are to be reviewed and included in rate base in future base rate proceedings.
For the preceding three years, regulatory actions regarding AIRP were as follows:

February 2016 -June 2018, SJG filed a petitionits annual CIP filing with the BPU for approval to continuerequesting a $26.4 million decrease in revenues, which included a $22.4 million decrease in weather-related revenues and a $4.0 million decrease in non-weather related revenues. This request was approved by the BPU, on a provisional basis, in September 2018, effective October 2018, and was approved in final form in May 2019.
•2019-2020 CIP year - In June 2019, SJG filed its AIRP,annual CIP filing with the BPU requesting a total $7.6 million net decrease in revenues, which included a $32.3 million decrease in non-weather related revenues and a $24.7 million increase in weather related revenues. This request was set to expire atapproved by the end of 2016.BPU, on a provisional basis, in September 2019, effective October 2019.

AIRP - In its petition, SJG requested to extend the AIRP for an additional seven years with program investments totaling approximately $500.0 million. In its Petition, SJG also requested to increase revenues by $13.0 million to reflect in base rates all AIRP investments made from the time of SJG’s last base rate case to the end of the initial AIRP.
October 2016, - Thethe BPU issued an Order approvingapproved an extension of the AIRP for a five-year period (“AIRP II”), commencing October 1, 2016, with authorized investments of up to $302.5 million to continue replacing cast iron and unprotected bare steel mains and associated services. The BPU also approved an $11.0 million increase in revenues associated withPursuant to the roll in of $80.2 million ofOrder, AIRP II investments inclusive of $5.7 million of Allowance for Funds Used During Construction (AFUDC) intoare to be recovered through annual base rates, effective December 1, 2016.rate adjustments.

For the preceding three years, regulatory actions regarding AIRP II were as follows:

•April 2017 - SJG filed aits first annual petition, pursuant to the October 2016 BPU approval of the AIRP II, seeking a base rate adjustment to increase annual revenues by approximately $4.5 million to reflect the roll-in of $42.0 million of AIRP II investments made from October 1, 2016 through June 30, 2017.
•September 2017 - The BPU issued an Order approvingapproved an increase in annual revenues from base rates of $5.0 million to reflect the roll-in of $46.1 million AIRP II investments made from October 2016 through June 2017, effective October 1, 2017.

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Storm Hardening and Reliability Program (SHARP)•April 2018 - In August 2014,SJG submitted its second annual filing, seeking a base rate adjustment to increase annual revenues by approximately $6.6 million to reflect the roll-in of $60.4 million of AIRP II investments made from July 1, 2017 through June 30, 2018. This was approved in September 2018.
•April 2019 - SJG submitted its third annual filing seeking a base rate adjustment to increase annual revenues by approximately $6.5 million to reflect the roll-in of approximately $63.0 million of AIRP II investments placed in service from July 1, 2018 through June 30, 2019.
•September 2019 - The BPU issuedapproved an order approving a $103.5increase in annual revenues from base rates of $6.7 million Storm Hardening and Reliability Program (“SHARP”) to replacereflect the roll-in of $64.5 million of AIRP II investments made from July 2018 through June 2019, effective October 1, 2019.

SHARP - SHARP replaces low pressure distribution mains and services with high pressure mains and services in coastal areas that are susceptible to flooding during major storm events over a three-year period. Pursuant to the Order,events. SHARP investments are to be recovered through annual base rate adjustments.


Since SHARP’s initial BPU approval,For the preceding three years, regulatory actions regarding SHARP included the following:


•April 20152017 - SJG filed a petition seeking a base rate adjustment to increase annual revenues by approximately $4.0 million to reflect approximately $36.6 million of SHARP investments made from July 2014 through June 2015.
September 2015 - The BPU approved SJG’s request to increase annual revenues from base rates by $4.0 million, effective October 1, 2015.
April 2016 - SJG filed a petition seeking a base rate adjustment to increase annual revenues by approximately $4.3 million to reflect approximately $33.7 million of SHARP investments made from July 2015 through June 2016.
September 2016 - The BPU approved an increase in annual revenues from base rates of $3.9 million to reflect the roll-in of $33.7 million of SHARP investments made from July 2015 through June 2016, effective October 1, 2016.
April 2017 - SJG filed a petition seeking a base rate adjustment to increase annual revenues by approximately $3.98 million to reflect approximately $35.7 million of SHARP investments made from July 2016 through June 2017.
•September 2017 - The BPU issued an Order approvingapproved an increase in annual revenues from base rates of $3.6 million to reflect the roll-in of $33.3 million SHARP investments made from July 2016 through June 2017, effective October 1, 2017.
•November 2017 - SJG filed a petition with the BPU for approval to continue its storm hardening efforts under a second phase of SHARP (“SHARP II”). Phase one of SJG’s initial SHARP expired in June of 2017. In its petition, SJG proposed a three-yearthree-year program, with a total investment level of approximately $110.25$110.3 million, focused on four system enhancement projects within the coastal regions. SJG also proposed to recover the SHARP II through annual base rate adjustments, with no impact to customer bills until October 2019. The related petition is currently pending BPU approval.


Energy Efficiency Tracker (EET) - In July 2009,This was approved by the BPU issued an Order approvingin May 2018 with a $17.0total of $100.3 million Energy Efficiency Program (EEP I), under which SJG was permitted to invest in energy efficiency programs (EEPs) for residential, commercial and industrial customers over a two-year period.recoverable through SHARP II. Pursuant to the Order,order, SHARP II investments are to be recovered through annual base rate adjustments.
•April 2019 - SJG was also permittedsubmitted its first annual filing, pursuant to recover incremental operating and maintenance expenses and earnthe May 2018 BPU approval of the SHARP II, seeking a returnbase rate adjustment to increase annual revenues by approximately $3.0 million to reflect the roll-in of and return on, programapproximately $28.3 million of SHARP II investments annuallyplaced in service during June 1, 2018 through June 30, 2019.
•September 2019 - The BPU approved an increase in annual revenues from base rates of $2.9 million to reflect the Energy Efficiency Tracker (“EET”). Inroll-in of $27.4 million of SHARP II investments made from June 2013, the2018 through June 2019, effective October 1, 2019.

EET - The BPU has authorized SJG to continue to offer EET/EEPs through June 2015 with an approved budget of $24.0 million.as discussed further below.


RegulatoryFor the preceding three years, regulatory actions regarding the EET/EEP were as follows:follows:


January 2015 - SJG filed a petition with the BPU seeking to continue offering energy efficiency programs through June 2018 with a proposed budget of $56.0 million and with the same rate recovery mechanism that exists for its current EEPs.
June 2015, SJG filed its annual EET rate adjustment petition, requesting a $7.6 million decrease in revenues to continue recovering the costs of, and the allowed return on, prior investments associated with EEPs.
August 2015, the BPU approved a two-year extension of SJG's EEPs through August 31, 2017, with a program budget of $36.3 million. The BPU’s approval permitted SJG to adjust its EET rate, effective September 1, 2015, to increase annual revenues by $2.6 million , to recover projected costs and the allowed return on the first year of its investments in the EEP extension.
February 2016 - The BPU approved a revenue decrease of $7.9 million associated with the two most recent annual EET rate adjustment filings, effective April 1, 2016.
June 2016 - SJG filed its annual EET rate adjustment petition, requesting a $0.8 million decrease in revenues to continue recovering the costs of, and the allowed return on, prior investments associated with EEPs.
October 2016 - The BPU approved a revenue decrease of $1.6 million associated with SJG's annual EET rate adjustment filing, effective November 10, 2016.
November 2016 - SJG filed a letter petition requesting an extension of its current Energy Efficiency Program (“EEP III”) through December 31, 2018, allowing SJG to spend the remainder of its existing BPU approved budget over the extended term. The BPU approved this extension in January 2017.
•January 2017 - The BPU issued an Order approvingapproved SJG’s request to extend the expiration date of EEP III from August 2017 to December 2018, without any modification to the subprograms or the amount of the previously authorized budget of $36.3 million, inclusive of operation and maintenance expenses.
•June 2017 - SJG filed its Eighth Annualannual EET Filing,filing, requesting a $3.0 million increase in revenues to continue recovering the costs of, and the allowed return on, prior investments associated with EEPs.
•November 2017 - The BPU issued an Order approvingapproved a revenue increase of $2.6 million associated with the Eighth Annualeighth annual EET Filing,filing, effective December 1, 2017.

•March 2018 - SJG filed a petition with the BPU seeking to continue its existing EEP's, with modifications, and to implement new programs (the “EEP IV”) for a five-year period with a proposed budget of approximately $195.4 million and with the same rate recovery mechanism that exists for its current EEP's. Under its existing EEP's, SJG is permitted to recover incremental operating and maintenance expenses and earn a return of, and return on, program investments.
Societal Benefits Clause (SBC)•June 2018 - SJG filed its annual EET rate adjustment petition, requesting a $1.6 million decrease in revenues to continue recovering the costs of, and the allowed return on, prior investments associated with its EEPs. This was approved by the BPU in January 2019, effective February 1, 2019.
•October 2018 - The BPU approved SJG's request to continue its existing EEPs with modifications, and to implement several new EEP's for a period of three years (EEP IV), with a total budget of $81.3 million and a revenue increase of $3.5 million, effective November 1, 2018.
•June 2019 - SJG filed its annual EET rate adjustment petition, requesting a $1.3 million increase in revenues to continue recovering the costs of, and the allowed return on, investments associated with its EEPs. This was approved by the BPU in January 2020, effective February 1, 2020.

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SBC - The SBC allows SJG to recover costs related to several BPU-mandated programs. Within the SBC are a Remediation Adjustment Clause (RAC), a New Jersey Clean Energy Program (NJCEP)RAC, the NJCEP and a Universal Service Fund (USF)the USF program. SBC adjustments affect revenue and cash flows but do not directly affect earnings as related costs are deferred and recovered through rates on an on-going basis.
 
For the preceding three years, regulatory actions regarding the SBC, with the exception of USF, which requires separate regulatory filings, were as follows:


•2017-2018 SBC filing - In July 2015 -2017, SJG made its annual 2015-2016 SBC filing, requesting a $5.0 million decrease in SBC revenues. The BPU approved this filing in April 2016.
July 2016 - SJG made its annual 2016-2017 SBC filing, requesting a $16.0 million increase in SBC revenues. The BPU approved this filing in May 2017.
July 2017 - SJG made its annual 2017-2018 SBC filing requesting an $8.5 million increase in annual revenues. The BPU approved this filing in January 2018.

•2018-2019 SBC filing - In July 2018, SJG made its annual filing requesting a $3.4 million decrease in annual revenues. In March 2019, the BPU approved a $2.2 million decrease in annual revenues for this filing, with rates effective May 1, 2019.
Remediation Adjustment Clause (RAC)•2019-2020 SBC filing - In July 2019, SJG made its annual filing requesting a net $3.9 million increase, including tax, in annual revenues. The matter is currently pending BPU approval.

RAC - The RAC recovers environmental remediation costs of 12 former gas manufacturing plants (see Note 15). The BPU allows SJG to recover such costs over seven-yearseven-year amortization periods. The net between the amounts actually spent and amounts recovered from customers is recorded as a regulatory asset, "Environmental Remediation Cost Expended - Net." RAC activity affects revenue and cash flows but does not directly affect earnings because of the cost recovery over seven-yearseven-year amortization periods. As of December 31, 20172019 and 2016,2018, SJG reflected the unamortized remediation costs of $100.3$156.3 million and $72.0$136.2 million, respectively, on the consolidated balance sheets under Regulatory Assets (see Note 11). Since implementing the RAC in 1992, SJG has recovered $120.4$154.2 million through rates.


Clean Energy Program Clause (CLEP)CLEP - The CLEP recovers costs associated with State mandated New Jersey Clean Energy Programs (NJCEP) related to SJG’s energy efficiency and renewable energy programs. In June of 2015,programs required under the BPU approved a NJCEP funding level of $345.0 million through June 2016, of which SJG was responsible for $14.6 million. In June of 2016,NJCEP. For the BPU approved a NJCEP funding level of $345.0 million through preceding three years, regulatory actions regarding the CLEP were as follows:

•June 2017 of which SJG was responsible for $14.6 million. In June of 2017, the- The BPU approved a NJCEP funding level of $344.7 million through June 2018, of which SJG was responsible for $12.7 million.
•June 2018 - The BPU approved a NJCEP funding level of $344.7 million through June 2019, of which SJG is responsible for 12.7$12.7 million.

•August 2019 - The BPU approved an update to the NJCEP funding level of $344.7 million through June 2020, of which SJG is responsible for $13.2 million.
Universal Service Fund (USF)
USF - The USF is a statewide program through which funds for the USF and Lifeline Credit and Tenants Assistance Programs are collected from customers of all New Jersey electric and gas utilities. USF adjustments affect cash flows but do not directly affect revenue or earnings as related costs are deferred and recovered through rates on an on-going basis.
 
SeparateFor the preceding three years, regulatory actions regarding the USF (separate from the RAC and CLEP portions of the SBC) were as follows:follows:


June 2015 - SJG made its annual USF filing, along with the State’s other electric and gas utilities, proposing to decrease the statewide gas revenues by $46.4 million. This proposal was designed to decrease SJG’s annual USF revenue by $3.4 million.
September 2015 - The BPU approved the statewide budget of $46.4 million for all the State’s gas utilities.  SJG's portion of the total is approximately $5.2 million, which decreased rates effective October 1, 2015, resulting in a $3.4 million decrease to its USF recoveries.
June 2016 - SJG made its annual USF filing, along with the State’s other electric and gas utilities, proposing to increase the statewide gas revenues by $56.0 million.  This proposal was designed to increase SJG’s annual USF revenue by $1.1 million.
September 2016 - The BPU approved the statewide budget of $56.0 million for all the State’s gas utilities.  SJG's portion of the total is approximately $5.6 million, which increased rates effective October 1, 2016, resulting in a $1.1 million increase to its USF recoveries.
•June 2017 - SJG made its annual USF filing, along with the State’s other gas utilities, proposing to decrease the statewide gas revenues by $16.3 million.  This proposal was designed to decrease SJG’s annual USF revenue by $2.0 million.
•September 2017 - The BPU approved the statewide budget of $38.3 million for all the State’s gas utilities.  SJG's portion of the total was approximately $3.2 million, resulting in a $2.2 million decrease to its USF recoveries effective October 1, 2017.

•June 2018 - SJG made its annual USF filing, along with the State's other gas utilities, proposing to decrease statewide electric and gas revenues by $10.4 million. This proposal included an increase to SJG's annual USF recoveries of $0.9 million.
•September 2018 - The BPU approved the statewide USF annual 2018-2019 budget for all of New Jersey's gas utilities. SJG's portion of the total is approximately $3.7 million, resulting in a $0.9 million increase to its USF recoveries, effective October 1, 2018.
•June 2019 - SJG made its annual USF filing, along with the State’s other gas utilities, proposing to decrease statewide gas revenues by $6.7 million. This proposal included an increase to SJG’s annual USF recoveries of $1.0 million.
•September 2019 - The BPU approved a statewide USF annual 2019-2020 budget for all the State’s gas utilities, which included an increase of approximately $1.0 million in SJG’s USF recoveries, effective October 1, 2019.

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The BGSS, CIP and USF approvals discussed above do not impact SJG's earnings. They represent changes in the cash requirements of SJG corresponding to cost changes and/or previously over/under recoveries from ratepayers associated with each respective mechanism.


Other Regulatory Matters-

Unbundling - This allows all natural gas consumers to select their natural gas commodity supplier. As of December 31, 2017, 29,1412019, 21,693 of SJG's customers were purchasing their gas commodity from someone other than SJG. Customers choosing to purchase natural gas from providers other than the utility are charged for the cost of gas by the marketer. The resulting decrease in utility revenues is offset by a corresponding decrease in gas costs. While customer choice can reduce utility revenues, it does not negatively affect SJG's net income or financial condition.condition as the resulting decrease in utility revenues is offset by a corresponding decrease in gas costs. The BPU continues to allow for full recovery of prudently incurred natural gas costs through the BGSS. Unbundling did not change the fact that SJG still recovers cost of service, including certain deferred costs, through base rates.
 
Pipeline Integrity Costs - SJG is permitted to defer and recover incremental costs incurred as a result of Pipeline Integrity Management regulations, which are aimed at enhancing public safety and reliability. The regulations require that utilities use a comprehensive analysis to assess, evaluate, repair and validate the integrity of certain transmission lines in the event of a leak or failure. As part of SJG's 2014 base rate case, it was permitted to recover previously deferred pipeline integrity costs incurred from October 2010 through June 2014.  In addition, SJG is authorized to defer future program costs, including related carrying costs, for recovery in the next base rate case proceeding, subject to review by the BPU.  As

Tax Reform - In March 2018, SJG filed a petition with the BPU for a change in rates, customer refund and rider associated with the implementation of December 31, 2017Tax Reform. The BPU subsequently approved an interim rate reduction, effective April 1, 2018, to reflect the change in the corporate tax rate within SJG's base rates.

In September 2018, the BPU granted final approval of SJG's request to implement changes in the corporate tax rate, from 35% to 21%, within SJG's base rate, in accordance with Tax Reform, including:

◦A final base rate adjustment to reflect an annual revenue reduction of approximately $25.9 million, effective April 1, 2018;
◦A one-time customer refund was issued in October 2018 of approximately $13.8 million, including interest, for over collected tax during the period January 1, 2018 through September 30, 2018; and 2016, deferred pipeline integrity costs totaled $0.5
◦A customer refund of approximately $27.5 million for "Unprotected" EDIT through a separate tariff rider over a five-year period effective October 1, 2018.

In March 2019, SJG submitted a compliance filing, pursuant to the September 2018 Order, identifying the revised estimated EDIT balances and $4.0the proposed amortization and refund mechanism for the "Protected" EDIT Balance. The matter is still pending BPU approval.

In June 2019, SJG filed its first annual Tax Act Rider petition, pursuant to the September 2018 Order, requesting a rate adjustment to refund approximately $6.8 million respectively,related to SJG’s "Protected" and are included in regulatory assets (see Note 11)."Unprotected" EDIT. The matter is currently pending BPU approval.


Filings and petitions described above are still pending, unless otherwise indicated.



ETG:
11.REGULATORY ASSETS & REGULATORY LIABILITIES:


As part of the Acquisition approval by the BPU, the Company was required to provide ETG customers with a credit of $15.0 million within ninety days of the Acquisition closing date, which was July 1, 2018. ETG provided a one-time bill credit to all customers by September 2018.

Rate Case - In April 2019, ETG filed a petition with the BPU requesting a base rate revenue increase to recognize the infrastructure investments made to maintain the safety and reliability of its natural gas system. In November 2019, the BPU issued an Order that permitted ETG to increase base rate revenues by $34.0 million with new rates in effect November 15, 2019. The Order also provides for an overall after-tax rate of return of approximately 6.5%, with a return on equity of approximately 9.6% and a common equity component of approximately 51.5%.


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Tax Reform - In March 2018, ETG filed a petition with the BPU requesting an annual reduction of $10.9 million, effective April 1, 2018, which reflected the reduced corporate tax rate as a result of Tax Reform. The BPU authorized ETG to implement its proposed base rate reduction on April 1, 2018 on an interim basis. In June 2018, the BPU approved a final base rate reduction of $12.1 million which was implemented by ETG on July 1, 2018.

In June 2018, the BPU authorized ETG to issue a one-time customer refund for over-collected tax during the period January 1, 2018 though June 30, 2018. ETG issued a one-time customer refund of $5.2 million, including interest, for the over-collected taxes in July and August 2018 as bill credits.

The current effective rate mechanisms reflected in ETG’s tariff are as follows:

IIP - Consistent with Acquisition approval, SJI was required to develop a plan, in concert with the BPU and the New Jersey Division of Rate Counsel, to address the replacement of ETG's aging infrastructure. In October 2018, ETG filed an IIP petition with the BPU pursuant to rules adopted by the BPU in December 2017 pertaining to utility infrastructure investments. The IIP petition sought authority to recover the costs associated with ETG's initial investment of approximately $518.0 million from 2019-2023 to, among other things, replace its cast-iron and low-pressure vintage main and related services. The IIP petition included a request for timely recovery of ETG's investment on a semi-annual basis through a separate rate mechanism.

In June 2019, the BPU approved a $300.0 million IIP effective July 1, 2019. The Order authorized the recovery of costs associated with ETG’s investments of approximately $300.0 million between 2019-2024 to replace its cast-iron and bare steel vintage main and related services. The Order provides for annual recovery of ETG's investments through a separate rate mechanism.

BGSS Clause - The BGSS for ETG is similar to that of SJG defined above. For the preceding two years, inclusive of the period following the Acquisition of ETG by SJI, regulatory actions regarding the BGSS were as follows:

•May 2018 - The BPU approved, on a final basis, the provisional rates that were authorized by the BPU in its September 2017 Order, effective June 2018.
•May 2018 - ETG filed its annual BGSS filing with the BPU, requesting a $7.1 million decrease in gas cost recoveries. This was approved in September 2018.
•December 2018 - ETG submitted a notice of intent to self-implement a BGSS rate adjustment based on a 5% increase of the monthly bill of a typical residential customer, effective February 1, 2019; that adjustment took effect on February 1, 2019.
•May 2019 - ETG filed its annual BGSS filing with the BPU, requesting to maintain its current BGSS-P rate. As ETG requested to maintain its current rate there was no corresponding increase or decrease in gas cost recoveries requested. This was approved on a provisional basis effective October 1, 2019.

EEP - The EEP rate enables ETG to recover the costs of its EEP as authorized by the BPU. ETG’s EEP consists of a range of rebates and related offers, including, for example, various customer education and outreach initiatives, as well as an on-line customer dashboard, that are designed to encourage customers to conserve energy and to provide them with information on how to lower their gas bills. ETG has authorization from the BPU to offer its EEP through February 29, 2020 with a total budget of approximately $3.0 million.

For the preceding two years, inclusive of the period following the Acquisition of ETG by SJI, regulatory actions regarding the EEP were as follows:

•June 2018 - ETG filed to extend its EEP through December 2019.
•August 2018 - The BPU approved a revenue increase of $1.2 million to an annual revenue of $2.2 million effective September 2018 to continue recovering the costs of, and the allowed return on, prior investments associated with its EEP.
•August 2018 - ETG filed its annual EEP rate adjustment petition, requesting a revenue increase of $1.3 million to an annual revenue of $2.2 million to continue recovering the costs of, and the allowed return on, prior investments associated with its EEP.
•October 2018 - The Board approved the extension of the EEP through February 2019, consistent in all other respects with the Board's April 2017 Order.
•January 2019 - ETG entered into a Stipulation with Board Staff and the New Jersey Division of Rate Counsel extending its EEP through February 29, 2020 at a total budget of approximately $3.0 million. The BPU approved in February 2019 the Stipulation.
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•April 2019 - The BPU approved a revenue increase of $1.3 million associated with ETG’s annual EEP rate adjustment filing, effective May 1, 2019.
•July 2019 - ETG filed its annual EEP rate adjustment petition, requesting a $1.0 million increase in revenues to continue recovering the costs of, and the allowed return on, investments associated with its EEP. This matter is currently pending BPU approval.

WNC - The WNC rate allows ETG to implement surcharges or credits during the months of October through May to compensate for weather-related changes in customer usage from the previous winter period.

For the preceding two years, inclusive of the period following the Acquisition of ETG by SJI, regulatory actions regarding the WNC were as follows:

•August 2018 - ETG filed its annual WNC rate adjustment petition, requesting a revenue decrease of $0.8 million to an annual revenue of $6.3 million to recover a deficiency from warmer than normal weather. This was approved in October 2018.
•July 2019 - ETG filed its annual WNC rate adjustment petition, requesting a $7.8 million decrease in revenues from the prior filing to return a net revenue excess of $1.6 million primarily due to colder than normal weather. The requested rate was approved, on a provisional basis, effective November 1, 2019.

OSMC - The OSMC rate is designed to flow back to ETG’s firm customers the margins received from on-system sales and transportation services.

For the preceding two years, inclusive of the period following the Acquisition of ETG by SJI, regulatory actions regarding the OSMC were as follows:

•August 2018 - ETG filed its annual OSMC rate adjustment petition, requesting a revenue increase of $1.1 million. This was approved in October 2018.
•July 2019 - ETG filed its annual OSMC rate adjustment petition, requesting a $0.2 million decrease in revenues to return an over collection. The requested rate was approved on a provisional basis, effective November 1, 2019.

SBC - Similar to SJG, the SBC allows ETG to recover costs related to several BPU-mandated programs, including the RAC, the NJCEP and the USF program. SBC adjustments affect revenue and cash flows but do not directly affect earnings as related costs are deferred and recovered through rates on an on-going basis.

RAC - The RAC is similar to that of SJG defined above. As of December 31, 2019, ETG had unamortized environmental remediation balance of $3.5 million on the consolidated balance sheet as a regulatory liability.

For the preceding two years, inclusive of the period following the Acquisition, regulatory actions regarding the RAC were as follows:

•August 2018 - ETG filed its annual RAC filing with the BPU, requesting a $6.9 million increase in RAC recoveries. This was approved in May 2019, effective June 1, 2019.
•October 2018 - The BPU authorized ETG to maintain the current rate with no change in RAC recoveries, effective November 2018.
•July 2019 - ETG filed its annual RAC rate adjustment petition, requesting a $6.1 million increase in revenues to continue recovering the costs of remediation. This matter is currently pending BPU approval.

CEP - The CEP recovers costs associated with State mandated NJCEP related to ETG’s energy efficiency and renewable energy programs. In August 2019, the BPU approved a NJCEP funding level of $344.7 million through June 2020, of which ETG is responsible for $11.5 million.

For the preceding two years, inclusive of the period following the Acquisition of ETG by SJI, regulatory actions regarding the CEP were as follows:

•August 2018 - ETG filed its annual CEP rate adjustment petition, requesting a revenue decrease of $1.6 million to an annual revenue of $10.0 million to recovery costs mandated by the Board. This was approved in October 2018.
•July 2019 - ETG filed its annual CEP rate adjustment petition, requesting a $0.1 million decrease in revenues to return an over collection. The requested rate was approved, on a provisional basis, effective November 1, 2019.

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USF - The USF is similar to that of SJG defined above.

For the preceding two years, inclusive of the period following the Acquisition of ETG by SJI, regulatory actions regarding the USF were as follows:

•June 2018 - ETG made its annual USF filing, along with the State’s other gas utilities, proposing to increase statewide electric and gas revenues by $7.2 million.  This proposal included an increase to ETG’s annual USF recoveries of $0.8 million.
•September 2018 - The BPU approved the statewide budget of $45.5 million for all the State's gas utilities. ETG’s portion of the total is approximately $4.8 million, resulting in a $0.8 million increase to its USF recoveries, effective October 1, 2018.
•June 2019 - ETG, along with the other NJ gas utilities, filed jointly for statewide USF and Lifeline rate increases.The estimated revenue increase for ETG is approximately $0.8 million.
•September 2019 - The BPU approved the statewide USF annual 2019-2020 budget for all the State’s gas utilities, which included an increase of approximately $0.8 million in ETG’s USF recoveries, effective October 1, 2019.

Aside from EEP and WNC and carrying cost income/expense on the BGSS (expense only), CEP, RAC and USF, the clauses discussed above do not impact ETG’s earnings. They represent changes in the cash requirements of ETG corresponding to cost changes and/or previously over/under recoveries from ratepayers associated with each respective mechanism.

ELK:

As part of the Acquisition approval by the MPSC, the Company was required to provide ELK customers with a one-time bill credit of $0.3 million. Consistent with this requirement, ELK issued one-time bill credits to all customers in September 2018.

In June 2018, ELK filed a base rate case application with the MPSC. In January 2019, the Public Utility Law Judge issued a proposed ruling approving a settlement in which the parties agreed to a revenue increase of approximately 90,000, with a 9.8% return on equity and a 6.98% overall return. In February 2019, the Commission approved ELK's new rates effective February 20, 2019.

Currently effective rate mechanisms reflected in ELK's tariff include a PGA and RNA. The PGA is a cost pass through for cost incurred from purchasing gas supplies for customers. Over/under recoveries are reconciled annually. The Company earns no profits on the PGA. The RNA is applicable to residential and commercial heating customers having a stated monthly revenue per customer. The primary variance is due to weather. The RNA amounts are established in a rate case for each customer grouping based on normal weather and the resultant average revenues per customer. The revenue excess or deficiency is calculated monthly and trued-up on a rolling twelve-month basis.

As discussed in Note 1, in December 2019, the Company announced it had entered into an agreement to sell ELK to a third-party buyer for approximately $15.0 million, pending MPSC approval. This transaction is expected to close in the middle of 2020.



11. REGULATORY ASSETS & REGULATORY LIABILITIES:

The discussion under Note 10 Rates and Regulatory Actions, is integral to the following explanations of specific regulatory assets and liabilities.


SJI's and SJG's
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The Utilities' Regulatory Assets consisted of the following items (in thousands):



December 31, 2019
December 31, 2017 December 31, 2016SJGETGELKTotal SJI
Environmental Remediation Costs:   Environmental Remediation Costs:
Expended - Net$100,327
 $71,997
 Expended - Net$156,279  $16,955  $—  $173,234  
Liability for Future Expenditures171,696
 153,047
 Liability for Future Expenditures131,262  101,083  —  232,345  
Insurance Recovery Receivables Insurance Recovery Receivables—  (20,423) —  (20,423) 
Deferred Asset Retirement Obligation Costs42,368
 43,014
Deferred Asset Retirement Obligation Costs36,515  18,108  —  54,623  
Deferred Pension Costs - Unrecognized Prior Service CostDeferred Pension Costs - Unrecognized Prior Service Cost—  37,378  —  37,378  
Deferred Pension and Other Postretirement Benefit Costs78,211
 85,693
Deferred Pension and Other Postretirement Benefit Costs72,010  1,825  —  73,835  
Deferred Gas Costs - Net16,838
 —
Deferred Gas Costs - Net49,469  5,301  293  55,063  
Conservation Incentive Program Receivable26,652
 27,567
Societal Benefit Costs Receivable2,484
 —
SBC ReceivableSBC Receivable1,478  —  —  1,478  
Deferred Interest Rate Contracts7,028
 7,365
Deferred Interest Rate Contracts7,856  —  —  7,856  
Energy Efficiency Tracker2,094
 219
EETEET12,877  —  —  12,877  
Pipeline Supplier Service Charges708
 2,122
Pipeline Supplier Service Charges525  —  —  525  
Pipeline Integrity Cost5,280
 4,810
Pipeline Integrity Cost6,516  —  —  6,516  
AFUDC - Equity Related Deferrals12,785
 12,434
AFUDC - Equity Related Deferrals10,712  —  —  10,712  
WNCWNC—  —  231  231  
Other Regulatory Assets2,753
 2,478
Other Regulatory Assets10,678  9,004  —  19,682  
   
Total Regulatory Assets$469,224
 $410,746
Total Regulatory Assets$496,177  $169,231  $524  $665,932  

December 31, 2018
SJGETGELKTotal SJI
Environmental Remediation Costs: 
Expended - Net$136,227  $10,875  $—  $147,102  
Liability for Future Expenditures148,071  104,594  —  252,665  
Deferred Asset Retirement Obligation Costs31,096  —  —  31,096  
Deferred Pension Costs - Unrecognized Prior Service Cost—  40,612  14  40,626  
Deferred Pension and Other Postretirement Benefit Costs80,121  2,607  30  82,758  
Deferred Gas Costs - Net57,889  —  289  58,178  
SBC Receivable2,173  —  —  2,173  
Deferred Interest Rate Contracts5,867  —  —  5,867  
EET2,319  —  —  2,319  
Pipeline Supplier Service Charges617  —  —  617  
Pipeline Integrity Cost5,140  —  —  5,140  
AFUDC - Equity Related Deferrals13,914  —  —  13,914  
WNC—  3,210  139  3,349  
Other Regulatory Assets8,931  8,023  211  17,165  
Total Regulatory Assets$492,365  $169,921  $683  $662,969  

Except where noted below, all regulatory assets are or willare expected to be recovered through utility rate charges, as detailed in the following discussion. SJG isThe Utilities are currently permitted to recover interest on Environmental Remediation Costs, Societal Benefit CostsSBC Receivable, Energy Efficiency TrackerEET and Pipeline Integrity Costs, while the other assets are being recovered without a return on investment.
 
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Environmental Remediation Costs - SJG has twoand ETG have regulatory assets associated with environmental costs related to the cleanup of environmental sites. SJG has 12 sites where SJG or its predecessors previously operated gas manufacturing plants. The first asset,plants, while ETG is subject to environmental remediation liabilities associated with 5 former manufactured gas plant sites in New Jersey. "Environmental Remediation Cost: Expended - Net," represents what was actually spent to clean up the sites, less recoveries through the RAC and insurance carriers. These costs meet the deferral requirements of GAAP,ASC 980, as the BPU allows SJG and ETG to recover such expenditures through the RAC. The other asset, "Environmental Remediation Cost: Liability for Future Expenditures," relates to estimated future expenditures required to complete the remediation of these sites.  SJG and ETG recorded this estimated amount as a regulatory asset with the corresponding current and noncurrent liabilities on the consolidated balance sheets under the captions "Current Liabilities" (SJI and SJG) and "Deferred Credits and Other Noncurrent Liabilities" (SJI) and "Regulatory and Other Noncurrent Liabilities" (SJG). The BPU allows SJG to recover the deferred costs through the RAC over seven-yearseven-year periods after they are spent. The increaseincurred. Environmental remediation costs at ETG are recoverable from December 31, 2016 is a result of expenditures made during 2017 andcustomers through the RAC approved by the BPU. "Insurance Recovery Receivables" represents an increaseinsurance settlement executed in the fourth quarter of 2019 with a third party. This settlement, which is expected future expenditures for remediation activities, primarily due to a changebe received in installments through the proposed typeend of remediation at two of2021, will be returned to ETG's customers through the sites currently under remediation. The proposed change resultsRAC. Of this total, $6.8 million was received by ETG in an increase in contractor costs.January 2020 (see Note 22).
 
Deferred Asset Retirement Obligation (ARO)ARO Costs - This regulatory asset resulted from the recording of ARO and additional utility plant,The Utilities record AROs primarily related to athe legal obligation SJG has for certain safety requirements uponto cut and cap gas distribution pipelines when taking those pipelines out of service. Deferred ARO costs represent the period to period passage of time (accretion) and the revision to cash flows originally estimated to settle the retirement of its gas distribution and transmission system. SJG recoversobligation (see Note 1). The Deferred ARO Costs regulatory asset increased year over year due to revisions to the settlement timing, retirement costs, throughand changes to inflation and discount rates chargedused to customers. All related accumulated accretion and depreciation amounts for these ARO represent timing differences inmeasure the recognition ofexpected retirement costs that SJGcombined with the addition of ETG's ARO recorded through purchase accounting. Corresponding increases are made to the ARO liability (see Note 1), thus having no impact on earnings.

Deferred Pension Costs - Unrecognized Prior Service Cost - The BPU approved ETG to recover costs related to ETG's unrecognized prior service cost and actuarial gains/losses for pension and postretirement benefits. This ETG deferred asset is currently recovering in ratesbeing amortized over 13.5 years for pension and as such, SJG is deferring such differences as regulatory assets.over 7.7 years for postretirement benefits.



Deferred Pension and Other Postretirement Benefit Costs - The BPU authorized SJG and ETG and the MPSC authorized ELK to recover costs related to postretirement benefits under the accrual method of accounting consistent with GAAP. SJG'sSJI's regulatory asset represents the recognition of the underfunded positions of SJG'sSJIU's pension and other postretirement benefit plans.  Subsequent adjustments to this balance occur annually to reflect changes in the funded positions of these benefit plans caused by changes in actual plan experience as well as assumptions of future experience (see Note 12).


Deferred Gas Costs - Net- Over/under collections of gas costs are monitored through SJG's and ETG's BGSS mechanism.clause. Net undercollected gas costs are classified as a regulatory asset and net overcollected gas costs are classified as a regulatory liability (see Note 10). Derivative contracts used to hedge natural gas purchases are also included in the BGSS, subject to BPU approval (see Note 16). The change in the BGSS from a $17.8 million regulatory liability at December 31, 2016 to a $16.8 million regulatory asset at December 31, 2017 was primarily due to an unfavorable court ruling related to a pricing dispute between SJG and a supplier (see Note 15) and the actual gas commodity costs exceeding recoveries from customers.


Conservation Incentive Program (CIP)SBC Receivable - The CIP tracking mechanism adjusts earnings when actual usage per customer experienced during the period varies from an established baseline usage per customer. Actual usage per customer was less than the established baseline during 2017, resulting in an increase in the receivable. This is primarily the result of warm weather experienced in the region.

Societal Benefits Costs (SBC) Receivable - This regulatory asset primarily represents the deferred expenses incurred under the New Jersey Clean Energy Program,NJCEP, which is a mechanism designed to recover costs associated with energy efficiency and renewable energy programs. Previous SBC rates produced recoveries greater than SBC costs, which resulted in the regulatory liability. The change from a liability at December 31, 2016 to an asset at December 31, 2017 is due to an increase in rates.programs(see Note 10).


Deferred Interest Rate Contracts - These amounts represent the market value of interest rate derivatives as discussed further in Note 16.


Energy Efficiency TrackerEET - This regulatory asset represents cumulative investments less recoveries under the Energy Efficiency Program.The EET Regulatory Asset increased year over year due to expenditures in excess of recoveries.


Pipeline Supplier Service Charges - This regulatory asset represents costs necessary to maintain adequate supply and system pressures, which are being recovered on a monthly basis through the BGSS over the term of the underlying supplier contracts (see Note 10).


Pipeline Integrity Cost - As part of SJG's September 2014October 2017 base rate increase, SJG was permitted to recover previously deferred pipeline integrity costs incurred through September 2014.October 2017. In addition, SJG is authorized to defer future program costs, including related carrying costs, for recovery in SJG's next base rate proceeding, subject to review by the BPU (see Note 10).


AFUDC Equity Related Deferrals - This regulatory asset represents the future revenue to recover the future income taxes related to the deferred tax liability for the equity component of AFUDC.  Included in the balance is $1.0 million which is being recovered over a period of three years as approved by the BPU in SJG’s 2014 rate case settlement.  The remaining balancedeferred amount is being amortized over the life of the associated utility plant.


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WNC - The tariffs for ETG include a weather normalization clause that reduces customer bills when winter weather is colder than normal and increases customer bills when winter weather is warmer than normal.

Other Regulatory Assets - Some of the assets included in Other Regulatory Assets are currently being recovered from ratepayers as approved by the BPU. Management believes the remaining deferred costs are probable of recovery from ratepayers through future utility rates. Included in Other Regulatory Assets for SJG is the impact of the ERIP on SJG employees, see Note 1.

The Utilities' Regulatory Liabilities consisted of the following items (in thousands):



December 31, 2019
December 31, 2017 December 31, 2016SJGETGELKTotal SJI
Excess Plant Removal Costs$23,295
 $28,226
Excess Plant Removal Costs$16,333  $36,343  $—  $52,676  
Deferred Revenue - Net—
 17,800
Societal Benefit Costs Payable—
 3,095
Excess Deferred Taxes263,810
 —
Excess Deferred Taxes251,355  117,695  —  369,050  
Deferred Revenues - NetDeferred Revenues - Net—  52  —  52  
CIP PayableCIP Payable6,794  —  —  6,794  
Amounts to be Refunded to CustomersAmounts to be Refunded to Customers—  10,625  —  10,625  
WNCWNC—  2,684  —  2,684  
Other Regulatory LiabilitiesOther Regulatory Liabilities—  1,037  —  1,037  
   
Total Regulatory Liabilities$287,105
 $49,121
Total Regulatory Liabilities$274,482  $168,436  $0  $442,918  


December 31, 2018
SJGETGELKTotal SJI
Excess Plant Removal Costs$20,805  $47,909  $1,393  $70,107  
Excess Deferred Taxes259,863  118,757  1,231  379,851  
Deferred Revenues - Net—  3,188  —  3,188  
CIP Payable5,871  —  —  5,871  
Amounts to be Refunded to Customers—  17,039  —  17,039  
Other Regulatory Liabilities—  2,443  —  2,443  
Total Regulatory Liabilities$286,539  $189,336  $2,624  $478,499  

Excess Plant Removal Costs- SJG accruesThe Utilities accrue and collectscollect for cost of removal of its utility property. This regulatory liability represents customer collections in excess of actual expenditures, which the company will returnbe returned to customers as a reduction to depreciation expense. The Excess Plant Removal Costs Liability decreased from $28.2 million at December 31, 2016 to $23.3 million at December 31, 2017year over year primarily due to higher assetthe actual removal costs incurred related toexceeding the AIRP.collections in 2019.


Deferred Revenue - Net - See discussion under "Deferred Gas Costs - Net" above.

Societal Benefit Costs Payable - See discussion under "Societal Benefit Costs Receivable" above.

Excess Deferred Taxes - This liability is recognized as a result of Tax Reform.Reform enacted into law on December 22, 2017 (See Notes 1 and 4). The decrease in this regulatory liability year over year is related to excess tax amounts returned to customers through customer billings. The Unprotected amount of excess deferred taxes of $26.1 million will be returned to customers over a five year period. The determination of the treatment for the remaining amount of excess deferred taxes will be deferred until SJG's next base rate case as approved by the BPU. (See Note 10).

Deferred Revenues - Net - Over/under collections of gas costs are monitored through the ETG's BGSS mechanism. Net under collected gas costs are classified as a regulatory asset and net over collected gas costs are classified as a regulatory liability. Derivative contracts used to hedge natural gas purchases are also included in the BGSS, subject to BPU approval.

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CIP Payable - The CIP tracking mechanism at SJG adjusts earnings when actual usage per customer experienced during the period varies from an established baseline usage per customer. Actual usage per customer was more than the established baseline during 2019, resulting in a regulatory liability. This is primarily the result of cold weather experienced in the region.

WNC - The tariffs for ETG include a WNC that reduces customer bills when winter weather is colder than normal and increases customer bills when winter weather is warmer than normal. The overall reduction of ETG's weather normalization from a $3.2 million regulatory asset at December 31, 2018 to a $2.7 million regulatory liability at December 31, 2019, was due to warmer weather.

Amounts to be Refunded to Customers - See "AMA" section in Note 4.1.


12.PENSION AND OTHER POSTRETIREMENT BENEFITS:

12. PENSION AND OTHER POSTRETIREMENT BENEFITS:

SJI has several defined benefit pension plans and other postretirement benefit plans. SJG participates in the defined benefit pension plans and other postretirement benefit plans of SJI. Approximately 39%For non-ETG and 56% of SJI's and SJG's current, full-time, regularELK employees, respectively, will be entitled to annuity payments upon retirement. Participationparticipation in the Company's qualified defined benefit pension plans was closed to new employees beginning in 2003; however, employees who are not eligible for these pension plans are eligible to receive an enhanced version of SJI's defined contribution plan. CertainAs part of the Acquisition, SJI acquired the entities' existing pension and SJG officers also participate inother post-employment plans. The plans include a non-funded supplemental executive retirement plan (SERP), a non-qualifiedqualified defined benefit, trusteed, pension plan.plan covering most eligible employees that is funded in accordance with the requirements of the ERISA. Approximately 35% and 34% of SJI's and SJG's current, full-time, regular employees, respectively, will be entitled to annuity payments upon retirement. The other postretirementCompany also provides certain non-qualified benefit and defined contribution pensions plans providefor a selected group of the Company's management and highly compensated employees. Benefits under these non-qualified pension plans are funded on a cash basis. In addition, SJI provides health care and life insurance benefits to some retirees.for eligible retired employees through a postretirement benefit plan.


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Net periodic benefit cost related to the SJI employee and officer pension and other postretirement benefit plans consisted of the following components (in thousands):
 
SJI (includes SJG and all other consolidated subsidiaries):Pension Benefits
 201920182017
Service Cost$5,583  $6,442  $4,989  
Interest Cost17,294  13,778  11,772  
Expected Return on Plan Assets(20,195) (18,672) (14,105) 
Amortizations:   
Prior Service Cost105  116  131  
Actuarial Loss9,550  11,528  10,282  
Net Periodic Benefit Cost12,337  13,192  13,069  
Curtailment and Special Termination Costs955  7,324  —  
Capitalized Benefit Costs(2,008) (2,243) (4,723) 
Deferred Benefit Costs(2,411) (1,987) (527) 
Total Net Periodic Benefit Expense$8,873  $16,286  $7,819  
SJI (includes SJG and all other consolidated subsidiaries):Pension Benefits
 2017 2016 2015
Service Cost$4,989
 $4,843
 $5,337
Interest Cost11,772
 12,125
 11,168
Expected Return on Plan Assets(14,105) (13,508) (14,789)
Amortizations:   
  
Prior Service Cost131
 212
 212
Actuarial Loss10,282
 9,394
 10,608
Net Periodic Benefit Cost13,069
 13,066
 12,536
Capitalized Benefit Costs(4,723) (4,645) (4,805)
Deferred Benefit Costs(527) (645) (1,007)
Total Net Periodic Benefit Expense$7,819
 $7,776
 $6,724


SJI (includes SJG and all other consolidated subsidiaries):Other Postretirement Benefits
 201920182017
Service Cost$533  $945  $910  
Interest Cost2,884  2,430  2,418  
Expected Return on Plan Assets(4,571) (4,286) (3,411) 
Amortizations:   
Prior Service Credits(561) (344) (344) 
Actuarial Loss1,163  903  1,238  
Net Periodic Benefit (Credit) Cost(552) (352) 811  
Curtailment and Special Termination Costs—  1,286  (106) 
Capitalized Benefit Costs(201) (290) (46) 
Deferred Benefit Costs357  580  —  
Total Net Periodic Benefit (Income) Expense$(396) $1,224  $659  


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SJI (includes SJG and all other consolidated subsidiaries):Other Postretirement Benefits
 2017 2016 2015
Service Cost$910
 $851
 $1,116
Interest Cost2,418
 2,615
 2,973
Expected Return on Plan Assets(3,411) (3,104) (2,993)
Amortizations:   
  
Prior Service (Credits) Cost(344) (344) 608
Actuarial Loss1,238
 1,109
 1,342
Net Periodic Benefit Cost811
 1,127
 3,046
Capitalized Benefit Costs(46) (277) (1,043)
Curtailment Costs (Credit)(106) —
 —
Deferred Benefit Costs—
 —
 (256)
Total Net Periodic Benefit Expense$659
 $850
 $1,747




Net periodic benefit cost related to the SJG employee and officer pension and other postretirement benefit plans consisted of the following components (in thousands):
SJG:Pension Benefits
201920182017
Service Cost$3,621  $5,073  $4,303  
Interest Cost11,067  10,010  9,925  
Expected Return on Plan Assets(11,028) (12,513) (11,366) 
Amortization:
Prior Service Cost95  112  127  
Actuarial Loss8,224  10,074  8,692  
Net Periodic Benefit Cost11,979  12,756  11,681  
Capitalized Benefit Costs(1,437) (1,943) (4,723) 
Affiliate SERP Allocations(3,541) (3,861) (2,235) 
Deferred Benefit Costs(2,411) (1,987) (527) 
Total Net Periodic Benefit Expense$4,590  $4,965  $4,196  
SJG:Pension Benefits
 2017 2016 2015
Service Cost$4,303
 $4,144
 $4,430
Interest Cost9,925
 10,292
 9,357
Expected Return on Plan Assets(11,366) (11,029) (11,914)
Amortization:     
Prior Service Cost (Credits)127
 203
 203
Actuarial Loss8,692
 7,975
 8,969
Net Periodic Benefit Cost11,681
 11,585
 11,045
Capitalized Benefit Costs(4,723) (4,645) (4,805)
Affiliate SERP Allocations(2,235) (1,960) (1,688)
Deferred Benefit Costs(527) (644) (1,007)
Total Net Periodic Benefit Expense$4,196
 $4,336
 $3,545


SJG:Other Postretirement Benefits
201920182017
Service Cost$343  $583  $582  
Interest Cost1,863  1,698  1,897  
Expected Return on Plan Assets(3,220) (3,449) (3,101) 
Amortization:
Prior Service Credits(474) (257) (257) 
Actuarial Loss1,042  695  972  
Net Periodic Benefit (Credit) Cost(446) (730) 93  
Capitalized Benefit Costs(155) (257) (46) 
Deferred Benefit Costs357  580  —  
Total Net Periodic Benefit (Income) Expense$(244) $(407) $47  

SJG:Other Postretirement Benefits
 2017 2016 2015
Service Cost$582
 $576
 $726
Interest Cost1,897
 2,120
 2,406
Expected Return on Plan Assets(3,101) (2,823) (2,708)
Amortization:
    
Prior Service Cost (Credits)(257) (257) 499
Actuarial Loss972
 945
 1,107
Net Periodic Benefit Cost93
 561
 2,030
Capitalized Benefit Costs(46) (277) (1,043)
Deferred Benefit Costs—
 —
 (256)
Total Net Periodic Benefit Expense$47
 $284
 $731

Curtailment and Special Termination Costs reflected in the tables above relate to the ERIP offered in 2018 as discussed in Note 1. Capitalized benefit costs reflected in the tables above relate to SJG’sthe Utilities' construction program. Deferredprograms. Effective January 1, 2018, SJI and SJG adopted FASB ASU 2017-07 which stipulates that only the service cost component of net benefit costs relate tocost is eligible for capitalization. In SJG's rate case settlement in October 2017, the BPU allowed deferral until the next base rate case of incremental expensesexpense associated with the adoption of new mortality tables in 2015. Deferred benefit costs will be recovered through rates as part of SJG's recent base rate case settlement (See Note10)adoption.


Companies with publicly traded equity securities that sponsor a postretirement benefit plan are required to fully recognize, as an asset or liability, the overfunded or underfunded status of its benefit plans and recognize changes in the funded status in the year in which the changes occur. Changes in funded status are generally reported in Other Comprehensive Loss; however, since SJG recoversthe Utilities recover all prudently incurred pension and postretirement benefit costs from its ratepayers, a significant portion of the charges resulting from the recording of additional liabilities under this requirement are reported as regulatory assets (see Note 11).


121

Details of the activity within the Regulatory Asset and Accumulated Other Comprehensive LossAOCL associated with Pension and Other Postretirement Benefits are as follows (in thousands):


SJI (includes SJG and all other consolidated subsidiaries):Regulatory Assets 
Accumulated Other
Comprehensive Loss
 (pre-tax)
SJI (includes SJG and all other consolidated subsidiaries):Regulatory Assets
Accumulated Other
Comprehensive Loss
 (pre-tax)
Pension Benefits Other Postretirement Benefits Pension Benefits Other Postretirement Benefits Pension BenefitsOther Postretirement BenefitsPension BenefitsOther Postretirement Benefits
Balance at January 1, 2016$64,432
 $15,347
 $35,066
 $2,062
Balance at January 1, 2018Balance at January 1, 2018$64,969  $13,242  $53,932  $3,506  


 

 

 
Amounts Arising during the Period:

 

 

 

Amounts Arising during the Period:
Net Actuarial Gain9,706
 2,584
 8,370
 829
Net Actuarial Gain (Loss) Net Actuarial Gain (Loss)8,637  5,662  (5,953) (1,819) 
Prior Service Credit—
 257
 —
 84
 Prior Service Credit70  (3,247) —  (2,471) 
Other (Curtailments, Settlements, Special Termination)Other (Curtailments, Settlements, Special Termination)—  —  —  1,586  
Amounts Amortized to Net Periodic Costs:Amounts Amortized to Net Periodic Costs:
Net Actuarial Loss Net Actuarial Loss(6,025) (695) (5,450) (199) 
Prior Service (Credits) Cost Prior Service (Credits) Cost(112) 257  (4) 84  
Balance at December 31, 2018Balance at December 31, 201867,539  15,219  42,525  687  
Amounts Arising during the Period:Amounts Arising during the Period:
Net Actuarial (Loss) Gain Net Actuarial (Loss) Gain(404) (2,400) 12,865  311  
Amounts Amortized to Net Periodic Costs:

 

 

 

Amounts Amortized to Net Periodic Costs:
Net Actuarial Loss(5,485) (945) (3,838) (154) Net Actuarial Loss(5,456) (1,042) (4,094) (121) 
Prior Service Cost(203) —
 (8) —
 Prior Service Cost(95)��474  (11) 87  
       
Balance at December 31, 201668,450
 17,243
 39,590
 2,821
       
Amounts Arising during the Period:

 

 

 

Net Actuarial Gain (Loss)2,711
 (3,286) 18,506
 1,614
Prior Service Credit—
 257
 —
 84
Amounts Amortized to Net Periodic Costs:       
Net Actuarial Loss(6,066) (972) (4,160) (1,013)
Prior Service Cost(126) —
 (4) —
       
Balance at December 31, 2017$64,969
 $13,242
 $53,932
 $3,506
Balance at December 31, 2019Balance at December 31, 2019$61,584  $12,251  $51,285  $964  
 





122

SJG:Regulatory Assets Accumulated Other Comprehensive Loss (pre-tax)
 Pension Benefits Other Postretirement Benefits Pension Benefits Other Postretirement Benefits
Balance at January 1, 2016$64,432
 $15,347
 $20,463
 $—
        
Amounts Arising during the Period:       
   Net Actuarial Gain9,706
 2,584
 6,129
 —
   Prior Service Credit—
 257
 —
 —
Amounts Amortized to Net Periodic Costs:       
   Net Actuarial Loss(5,485) (945) (2,490) —
   Prior Service Cost(203) —
 —
 —
        
Balance at December 31, 201668,450
 17,243
 24,102
 —
        
Amounts Arising during the Period:       
   Net Actuarial Gain2,711
 (3,286) 17,881
 —
   Prior Service Credit—
 257
 —
 —
Amounts Amortized to Net Periodic Costs:       
   Net Actuarial Loss(6,066) (972) (2,627) —
   Prior Service Cost(126) —
 —
 —
        
Balance at December 31, 2017$64,969
 $13,242
 $39,356
 $—
SJG:Regulatory AssetsAccumulated Other Comprehensive Loss (pre-tax)
Pension BenefitsOther Postretirement BenefitsPension BenefitsOther Postretirement Benefits
Balance at January 1, 2018$64,969  $13,242  $39,356  $—  
 
Amounts Arising during the Period:
   Net Actuarial Gain (Loss)6,590  5,071  (911) —  
   Prior Service Credit (Cost)70  (3,247) —  —  
Other (Curtailments, Settlements, Special Termination)—  —  —  —  
Amounts Amortized to Net Periodic Costs:
   Net Actuarial Loss(6,025) (695) (4,049) —  
   Prior Service (Cost) Credit(111) 257  —  —  
 
Balance at December 31, 201865,493  14,628  34,396  —  
 
Amounts Arising during the Period:
   Net Actuarial Gain (Loss)726  (2,718) 10,562  —  
Amounts Amortized to Net Periodic Costs:
   Net Actuarial Loss(5,456) (1,042) (2,768) —  
   Prior Service (Cost) Credit(95) 474  —  —  
Balance at December 31, 2019$60,668  $11,342  $42,190  $—  


The estimated costs that will be amortized from Regulatory Assets for SJI and SJG into net periodic benefit costs in 20182020 are as follows (in thousands): 
 SJI and SJG (costs (credits) are the same for both entities):Pension BenefitsOther Postretirement Benefits
Prior Service Cost/(Credit)$95  $(474) 
Net Actuarial Loss$5,385  $665  
 SJI and SJG (costs are the same for both entities):Pension Benefits Other Postretirement Benefits
Prior Service Cost/(Credit)$124
 $(257)
Net Actuarial Loss$5,847
 $743


The estimated costs that will be amortized from for SJI and SJG Accumulated Other Comprehensive LossAOCL into net periodic benefit costs in 20182020 are as follows (in thousands):
Pension Benefits Other Postretirement  Benefits Pension BenefitsOther Postretirement  Benefits
SJI (includes SJG and all other consolidated subsidiaries):   SJI (includes SJG and all other consolidated subsidiaries):
Prior Service Cost/(Credit)$6
 $(87)Prior Service Cost/(Credit)$11  $(102) 
Net Actuarial Loss$5,665
 $213
Net Actuarial Loss$5,091  $104  
   
SJG:   SJG:
Prior Service Cost/(Credit)$—
 $—
Prior Service Cost/(Credit)$—  $—  
Net Actuarial Loss$4,143
 $—
Net Actuarial Loss$3,696  $—  
  

123

A reconciliation of the plans' benefit obligations, fair value of plan assets, funded status and amounts recognized in SJI's consolidated balance sheets follows (in thousands): 
SJI (includes SJG and all other consolidated subsidiaries):Pension Benefits Other Postretirement BenefitsSJI (includes SJG and all other consolidated subsidiaries):Pension BenefitsOther Postretirement Benefits
 
2017 2016 2017 2016 2019201820192018
Change in Benefit Obligations:
 
 
 
Change in Benefit Obligations:
Benefit Obligation at Beginning of Year$278,288
 $254,195
 $60,350
 $57,430
Benefit Obligation at Beginning of Year$402,156  $316,289  $69,511  $62,283  
Acquisition Opening Obligation Acquisition Opening Obligation—  100,362  —  13,195  
Service Cost4,989
 4,843
 910
 851
 Service Cost5,583  6,442  533  945  
Interest Cost11,772
 12,125
 2,418
 2,615
 Interest Cost17,294  13,778  2,884  2,430  
Actuarial Loss (Gain)32,893
 18,254
 1,411
 3,121
 Actuarial Loss (Gain)44,047  (26,274) 5,228  (3,534) 
Retiree Contributions—
 —
 19
 81
 Retiree Contributions—  —  59  265  
Plan Amendments—
 —
 —
 —
 Plan Amendments955  7,394  —  (3,012) 
Benefits Paid(11,653) (11,129) (2,825) (3,748) Benefits Paid(30,662) (15,835) (4,556) (3,061) 
Benefit Obligation at End of Year$316,289
 $278,288
 $62,283
 $60,350
Benefit Obligation at End of Year$439,373  $402,156  $73,659  $69,511  
       
Change in Plan Assets:
 
 
 
Change in Plan Assets:
Fair Value of Plan Assets at Beginning of Year$189,542
 $184,824
 $50,532
 $47,759
Fair Value of Plan Assets at Beginning of Year$287,220  $216,065  $70,531  $57,922  
Acquisition Beginning Fair Value Acquisition Beginning Fair Value—  94,685  —  15,659  
Actual Return on Plan Assets25,807
 13,569
 7,390
 2,784
 Actual Return on Plan Assets51,812  (10,399) 11,990  (3,050) 
Employer Contributions12,369
 2,278
 2,806
 3,656
 Employer Contributions4,127  2,704  4,498  2,796  
Retiree Contributions

 —
 19
 81
 Retiree Contributions—  —  59  265  
Benefits Paid(11,653) (11,129) (2,825) (3,748) Benefits Paid(30,662) (15,835) (4,556) (3,061) 
Fair Value of Plan Assets at End of Year$216,065
 $189,542
 $57,922
 $50,532
Fair Value of Plan Assets at End of Year$312,497  $287,220  $82,522  $70,531  
       
       
Funded Status at End of Year:$(100,224) $(88,746) $(4,361) $(9,818)Funded Status at End of Year:$(126,876) $(114,936) $8,863  $1,020  
Amounts Related to Unconsolidated Affiliate135
 326
 518
 540
Amounts Related to Unconsolidated Affiliate(2) (147) 233  320  
Accrued Net Benefit Cost at End of Year$(100,089) $(88,420) $(3,843) $(9,278)
Accrued Net Benefit (Cost) Credit at End of YearAccrued Net Benefit (Cost) Credit at End of Year$(126,878) $(115,083) $9,096  $1,340  
       
Amounts Recognized in the Statement of Financial Position Consist of:
 
 
 
Amounts Recognized in the Statement of Financial Position Consist of:
Current Liabilities$(2,388) $(2,463) $—
 $—
 Current Liabilities$(3,727) $(3,631) $—  $—  
Noncurrent Liabilities(97,701) (85,957) (3,843) (9,278) Noncurrent Liabilities(123,151) (111,452) 9,096  1,340  
Net Amount Recognized at End of Year$(100,089) $(88,420) $(3,843) $(9,278)Net Amount Recognized at End of Year$(126,878) $(115,083) $9,096  $1,340  
       
Amounts Recognized in Regulatory Assets Consist of:
 
 
 
Amounts Recognized in Regulatory Assets Consist of:
Prior Service Costs$428
 $538
 $(2,775) $(3,032)
Prior Service Costs (Credits) Prior Service Costs (Credits)$292  $162  $(5,290) $(5,765) 
Net Actuarial Loss64,541
 67,912
 16,017
 20,275
 Net Actuarial Loss61,292  67,377  17,541  20,984  
$64,969
 $68,450
 $13,242
 $17,243
 $61,584  $67,539  $12,251  $15,219  
       
Amounts Recognized in Accumulated Other Comprehensive Loss Consist of (pre-tax):
 
 
 
Amounts Recognized in Accumulated Other Comprehensive Loss Consist of (pre-tax):
Prior Service Costs$47
 $69
 $(906) $(989)
Prior Service Costs (Credits) Prior Service Costs (Credits)$32  $268  $(1,619) $(1,707) 
Net Actuarial Loss53,885
 39,521
 4,412
 3,810
 Net Actuarial Loss51,253  42,257  2,583  2,394  
$53,932
 $39,590
 $3,506
 $2,821
 $51,285  $42,525  $964  $687  
 


124

SJG:    Other
 Pension Benefits Postretirement Benefits
 2017 2016 2017 2016
Change in Benefit Obligations:
       
Benefit Obligation at Beginning of Year$236,356
 $213,660
 $48,549
 $46,518
Service Cost4,303
 4,144
 582
 576
Interest Cost9,925
 10,292
 1,897
 2,120
Actuarial Loss (Gain)27,892
 17,463
 328
 2,292
Retiree Contributions—
 —
 15
 70
Plan Amendments—
 —
 —
 —
Benefits Paid(9,410) (9,203) (2,273) (3,027)
Benefit Obligation at End of Year$269,066
 $236,356
 $49,098
 $48,549
Change in Plan Assets:   
    
Fair Value of Plan Assets at Beginning of Year$154,729
 $149,032
 $45,948
 $43,428
Actual Return on Plan Assets18,666
 12,656
 6,715
 2,531
Employer Contributions10,292
 2,244
 2,259
 2,946
Retiree Contributions—
 —
 14
 70
Benefits Paid(9,410) (9,203) (2,273) (3,027)
Fair Value of Plan Assets at End of Year$174,277
 $154,729
 $52,663
 $45,948
        
Funded Status at End of Year:
       
Accrued  Net Benefit Cost at End of Year$(94,789) $(81,627) $3,565
 $(2,601)
Amounts Recognized in the Statement of Financial Position Consist of:       
Current Liabilities$(2,353) $(2,428) $—
 $—
Noncurrent Liabilities(92,436) (79,199) 3,565
 (2,601)
Net Amount Recognized at End of Year$(94,789) $(81,627) $3,565
 $(2,601)
Amounts Recognized in Regulatory Assets Consist of:       
Prior Service Costs$428
 $538
 $(2,775) $(3,032)
Net Actuarial Loss64,541
 67,912
 16,017
 20,275
Net Amount Recognized at End of Year$64,969
 $68,450
 $13,242
 $17,243
Amounts Recognized in Accumulated Other Comprehensive Loss Consist of:       
Net Actuarial Loss$39,356
 $24,102
 $—
 $—


SJG:Other
Pension BenefitsPostretirement Benefits
2019 20182019 2018
Change in Benefit Obligations:
Benefit Obligation at Beginning of Year$264,823  $269,066  $44,882  $49,098  
Service Cost3,621  5,073  343  583  
Interest Cost11,067  10,010  1,863  1,698  
Actuarial Loss (Gain)24,020  (13,009) 3,481  (1,271) 
Retiree Contributions—  —  6  143  
Plan Amendments—  4,169  —  (3,247) 
Benefits Paid(17,014) (10,486) (3,269) (2,122) 
Benefit Obligation at End of Year$286,517  $264,823  $47,306  $44,882  
Change in Plan Assets:    
Fair Value of Plan Assets at Beginning of Year$160,285  $174,277  $49,770  $52,663  
Actual Return on Plan Assets23,760  (6,175) 9,419  (2,893) 
Employer Contributions3,927  2,669  3,264  1,979  
Retiree Contributions—  —  6  143  
Benefits Paid(17,013) (10,486) (3,269) (2,122) 
Fair Value of Plan Assets at End of Year$170,959  $160,285  $59,190  $49,770  
Funded Status at End of Year:
Accrued Net Benefit (Cost) Credit at End of Year$(115,558) $(104,538) $11,884  $4,888  
Amounts Recognized in the Statement of Financial Position Consist of:
Current Liabilities$(3,693) $(3,597) $—  $—  
Noncurrent Liabilities(111,865) (100,941) 11,884  4,888  
Net Amount Recognized at End of Year$(115,558) $(104,538) $11,884  $4,888  
Amounts Recognized in Regulatory Assets Consist of:
Prior Service Costs (Credits)$292  $163  $(5,290) $(5,765) 
Net Actuarial Loss60,376  65,330  16,632  20,393  
Net Amount Recognized at End of Year$60,668  $65,493  $11,342  $14,628  
Amounts Recognized in Accumulated Other Comprehensive Loss Consist of:
Net Actuarial Loss$42,190  $34,396  $—  $—  

The projected benefit obligation (PBO)PBO and accumulated benefit obligation (ABO)ABO of SJI's qualified employee pension plans were $243.9$354.9 million and $227.3$335.6 million, respectively, as of December 31, 2017;2019; and $224.3$329.2 million and $208.3$309.4 million, respectively, as of December 31, 2016.2018.  The ABO of these plans exceeded the value of the plan assets as of December 31, 20172019 and 2016.2018.  The value of these assets were $216.1$312.5 million and $189.5$287.2 million as of December 31, 20172019 and 2016,2018, respectively, and can be seen in the SJI table above.above under "Change in Plan Assets." The PBO and ABO for SJI's non-funded SERP were $72.4$84.5 million and $63.9$80.5 million, respectively, as of December 31, 2017;2019; and $53.9$73.0 million and $51.9$69.5 million, respectively, as of December 31, 2016.2018. SJI's SERP obligation is reflected in the tables above and has no assets.



125

The PBO and ABO of SJG's qualified employee pension plans were $197.0$199.3 million and $183.5$188.1 million, respectively, as of December 31, 2017;2019; and $183.2$188.1 million and $170.0$176.8 million, respectively, as of December 31, 2016.2018. The ABO of these plans exceeded the value of the plan assets as of December 31, 20172019 and 2016.2018. The value of these assets were $174.3$171.0 million and $154.7$160.3 million as of December 31, 20172019 and 2016,2018, respectively, and can be seen in the tables above.SJG table above under "Change in Plan Assets." The PBO and ABO for SJG's non-funded SERP were $72.0$84.1 million and $63.6$80.1 million, respectively, as of December 31, 2017;2019; and $53.2$72.6 million and $51.2$69.1 million, respectively, as of December 31, 2016.2018. SJG's SERP obligation is reflected in the tables above and has no assets.


The weighted-average assumptions used to determine benefit obligations for SJI and SJG at December 31 were:
Pension Benefits Other Postretirement Benefits Pension BenefitsOther Postretirement Benefits
2017 2016 2017 2016 2019201820192018
Discount Rate3.73% 4.30% 3.63% 4.13%Discount Rate3.49 %4.39 %3.43 %3.63 %
Rate of Compensation Increase3.50% 3.50% 3.50% 3.50%Rate of Compensation Increase3.00 %3.50 %3.00 %3.50 %
 
The weighted-average assumptions used to determine net periodic benefit cost (credit) for SJI and SJG for the years ended December 31 were:
Pension Benefits Other Postretirement Benefits Pension BenefitsOther Postretirement Benefits
2017 2016 2015 2017 2016 2015 201920182017201920182017
Discount Rate4.30% 4.83% 4.25% 4.13% 4.73% 4.20%Discount Rate4.39 %3.73 %4.30 %4.31 %4.13 %4.13 %
Expected Long-Term Return on Plan Assets7.25% 7.50% 7.75% 6.50% 6.50% 6.25%Expected Long-Term Return on Plan Assets7.25 %7.25 %7.25 %6.75 %6.75 %6.50 %
Rate of Compensation Increase3.50% 3.50% 3.50% 3.50% 3.50% 3.50%Rate of Compensation Increase3.50 %3.50 %3.50 %3.50 %3.50 %3.50 %
 
In 2014, the Society of Actuaries (SOA)SOA released new mortality tables (RP-2014), which the Company adopted as of December 31, 2014. Since then, the SOA has updated the mortality projection on an annual basis. The Company utilizes the most current projection tables available. The obligations as of December 31, 2017, 2016,2019, 2018 and 2015,2017, disclosed herein, reflect the use of the updated projection tables applicable to those years.


The discount rates used to determine the benefit obligations at December 31, 20172019 and 2016,2018, which are used to determine the net periodic benefit cost for the subsequent year, were based on a portfolio model of high-quality investments with maturities that match the expected benefit payments under our pension and other postretirement benefit plans.


The expected long-term return on plan assets (“return”) has been determined by applying long-term capital market projections provided by our pension plan Trustee to the asset allocation guidelines, as defined in SJI's and SJG's investment policy, to arrive at a weighted average return.  For certain other equity securities held by an investment manager outside of the control of the Trustee, the return has been determined based on historic performance in combination with long-term expectations.  The return for the other postretirement benefits plan is determined in the same manner as discussed above; however, the expected return is reduced based on the taxable nature of the underlying trusts. 

The retiree medical plan changed effective January 1, 2016. Retirees are provided a fixed contribution to a health reimbursement account, allowing them to obtain coverage from health-care exchanges, rather than utilizing the Company provided health-care plan. Since the health-care benefits are now a fixed dollar amount under the new plan and will not increase in the future, the plan no longer has health care trend assumptions as of December 31, 2015. As a result, assumed health care cost trend rates no longer have a significant effect on the amounts reported for SJI's and SJG's postretirement health care plans.
 
PLAN ASSETS - SJI's and SJG's overall investment strategy for pension plan assets is to achieve a diversification by asset class, style of manager, and sector and industry limits to achieve investment results that match the actuarially assumed rate of return, while preserving the inflation adjusted value of the plans.  SJI and SJG have implemented this diversification strategy primarily with commingled common/collective trust funds.  The target allocations for pension plan assets are 28-4840-70 percent U.S. equity securities, 13-2510-25 percent international equity securities, 32-4225-60 percent fixed income investments, and 0-70-20 percent to all other types of investments.  Equity securities include investments in commingled common/collective trust funds as well as large-cap and mid-cap companies.  Fixed income securities include commingled common/collective trust funds, group annuity contracts for pension payments, and hedge funds.  Other types of investments include investments in private equity funds and real estate funds that follow several different strategies.



The strategy recognizes that risk and volatility are present to some degree with all types of investments.  SJI and SJG seek to avoid high levels of risk at the total fund level through diversification by asset class, style of manager, and sector and industry limits.  Specifically prohibited investments include, but are not limited to, venture capital, margin trading, commodities and securities of companies with less than $250.0 million capitalization (except in the small-cap portion of the fund where capitalization levels as low as $50.0 million are permissible).  These restrictions are only applicable to individual investment managers with separately managed portfolios and do not apply to mutual funds or commingled trusts.


126

SJI evaluated its pension and other postretirement benefit plans' asset portfolios for the existence of significant concentrations of credit risk as of December 31, 2017.2019.  Types of concentrations that were evaluated include, but are not limited to, investment concentrations in a single entity, type of industry, foreign country, and individual fund.  As of December 31, 2017,2019, there were no significant concentrations (defined as greater than 10 percent of plan assets) of risk in SJI's pension and other postretirement benefit plan assets.


GAAP establishes a hierarchy that prioritizes fair value measurements based on the types of inputs used for the various valuation techniques.  This hierarchy groups assets into three distinct levels, as fully described in Note 17, which will serve as the basis for presentation throughout the remainder of this Note.
 
The fair values of SJI's and SJG's pension plan assets at December 31, 20172019 and 20162018 by asset category are as follows (in thousands): 
SJI (includes SJG and all other consolidated subsidiaries):
Asset CategoryTotalLevel 1Level 2Level 3
As of December 31, 2019
Cash / Cash Equivalents:
   Cash$2,493  $2,493  $—  $—  
   STIF-Type Instrument (a)1,702  1,676  26  —  
Equity securities:
   U.S. Large-Cap (b)30,863  30,863  —  —  
   U.S. Mid-Cap (b)5,862  5,862  —  —  
   U.S. Small-Cap (b)3,958  3,958  —  —  
   International (b)33,523  33,523  —  —  
Fixed Income:
   Guaranteed Insurance Contract (c)2,756  —  —  2,756  
   Core Plus Fixed Income (d)23,664  17,132  $6,532  —  
Subtotal Fair Value$104,821  $95,507  $6,558  $2,756  
Measured at net asset value practical expedient:
   Private Equity Fund (e)$9,650  
   Common/Collective Trust Funds - Real Estate (f)11,190  
20,840
   Other Common/Collective Trust Funds (g):
        Cash/Cash Equivalents23,965  
        Equity Securities - U.S.1,421  
25,386  
Subtotal measured at net asset value practical expedient46,226  
Items to reconcile to fair value of plan assets:
   Pension Trust Receivables (h)161,450  
     Total Fair Value$312,497  


127

SJI (includes SJG and all other consolidated subsidiaries):       
Asset CategoryTotal Level 1 Level 2 Level 3
As of December 31, 2017       
Cash / Cash Equivalents:

      
   Cash$72
 $72
 $—
 $—
   Common/Collective Trust Funds (a)477
 —
 477
 —
   STIF-Type Instrument (b)1,522
 —
 1,522
 —
Equity securities:
 
 
 
   Common/Collective Trust Funds - U.S. (a)75,699
 —
 75,699
 —
   Common/Collective Trust Funds - International (a)39,077
 —
 39,077
 —
   U.S. Large-Cap (c)13,526
 13,526
 —
 —
   U.S. Mid-Cap (c)1,701
 1,701
 —
 —
   U.S. Small-Cap (c)490
 490
 —
 —
   International (c)3,260
 3,260
 —
 —
Fixed Income:
 
 
 
   Common/Collective Trust Funds (a)54,106
 —
 54,106
 —
   Guaranteed Insurance Contract (d)9,211
 —
 —
 9,211
Other types of investments:
 
 
 
   Private Equity Fund (e)7,111
 —
 —
 7,111
   Common/Collective Trust Fund - Real Estate (f)9,813
 —
 —
 9,813
Total$216,065
 $19,049
 $170,881
 $26,135
Asset CategoryTotalLevel 1Level 2Level 3
As of December 31, 2018
Cash / Cash Equivalents:
   Cash$92,224  $92,224  $—  $—  
   STIF-Type Instrument (a)1,653  —  1,653  —  
Equity securities:
   U.S. Large-Cap (b)13,684  13,684  —  —  
   U.S. Mid-Cap (b)1,502  1,502  —  —  
   International (b)2,327  2,327  —  —  
Fixed Income:
   Guaranteed Insurance Contract (c)8,453  —  —  8,453  
Subtotal Fair Value$119,843  $109,737  $1,653  $8,453  
Measured at net asset value practical expedient:
   Private Equity Fund (e)$8,867  
   Common/Collective Trust Funds - Real Estate (f)9,737  
18,604  
   Other Common/Collective Trust Funds (g):
        Cash/Cash Equivalents696  
        Equity Securities - U.S.63,418  
        Equity Securities - International33,391  
        Fixed Income51,268  
148,773  
Subtotal measured at net asset value practical expedient$167,377  
     Total Fair Value$287,220  





128

Asset CategoryTotal Level 1 Level 2 Level 3
As of December 31, 2016       
Cash / Cash Equivalents:       
   Cash$63
 $63
 $—
 $—
   Common/Collective Trust Funds (a)460
 —
 460
 —
   STIF-Type Instrument (b)1,431
 —
 1,431
 —
Equity securities:       
   Common/Collective Trust Funds - U.S. (a)51,902
 —
 51,902
 —
   Common/Collective Trust Funds - International (a)33,096
 —
 33,096
 —
   U.S. Large-Cap (c)17,792
 17,792
 —
 —
   U.S. Mid-Cap (c)2,479
 2,479
 —
 —
   International (c)3,340
 3,340
 —
 —
Fixed Income:       
   Common/Collective Trust Funds (a)54,970
 —
 54,970
 —
   Guaranteed Insurance Contract (d)9,714
 —
 —
 9,714
Other types of investments:       
   Private Equity Fund (e)5,100
 —
 —
 5,100
   Common/Collective Trust Fund - Real Estate (f)9,195
 —
 —
 9,195
Total$189,542
 $23,674
 $141,859
 $24,009
SJG:
Asset CategoryTotalLevel 1Level 2Level 3
As of December 31, 2019:
Cash / Cash Equivalents:
Cash$1,482  $1,482  $—  $—  
   STIF-Type Instrument (a)21  —  21  —  
Fixed Income:
   Guaranteed Insurance Contract (c)2,216  —  —  2,216  
Subtotal Fair Value$3,719  $1,482  $21  $2,216  
Measured at net asset value practical expedient:
   Private Equity Fund (e)$7,761  
   Common/Collective Trust Funds - Real Estate (f)8,999  
16,760  
   Other Common/Collective Trust Funds (g):
        Cash/Cash Equivalents19,273  
        Equity Securities - U.S.1,143  
20,416  
Subtotal measured at net asset value practical expedient37,176  
Items to reconcile to fair value of plan assets:
   Pension Trust Receivables (h)130,064  
     Total Fair Value$170,959  



129

SJG:       
Asset CategoryTotal Level 1 Level 2 Level 3
As of December 31, 2017:       
Cash / Cash Equivalents:       
Cash$58
 $58
 $—
 $—
Common/Collective Trust Funds (a)385
 —
 385
 —
STIF-Type Instrument (b)1,228
 —
 1,228
 —
Equity securities:       
Common/Collective Trust Funds – U.S. (a)61,057
 —
 61,057
 —
Common/Collective Trust Funds – International (a)31,519
 —
 31,519
 —
U.S. Large-Cap (c)10,910
 10,910
 —
 —
U.S. Mid-Cap (c)1,372
 1,372
 —
 —
U.S. Small-Cap (c)395
 395
 —
 —
International (c)2,629
 2,629
 —
 —
Fixed Income:       
Common/Collective Trust Funds (a)43,640
 —
 43,640
 —
Guaranteed Insurance Contract (d)7,429
 —
 —
 7,429
Other types of investments:       
Private Equity Fund (e)5,735
 —
 —
 5,735
Common/Collective Trust Fund – Real Estate (f)7,920
 —
 —
 7,920
Total$174,277
 $15,364
 $137,829
 $21,084
Asset CategoryTotalLevel 1Level 2Level 3
As of December 31, 2018:
Cash / Cash Equivalents:
Cash$19  $19  $—  $—  
   STIF-Type Instrument (a)1,359  —  1,359  —  
Equity securities:
   U.S. Large-Cap (b)11,247  11,247  —  —  
   U.S. Mid-Cap (b)1,234  1,234  —  —  
   International (b)1,912  1,912  —  —  
Fixed Income:
   Guaranteed Insurance Contract (c)6,947  —  —  6,947  
Subtotal Fair Value$22,718  $14,412  $1,359  $6,947  
Measured at net asset value practical expedient:
   Private Equity Fund (e)$7,288  
   Common/Collective Trust Funds - Real Estate (f)8,003  
15,291  
   Other Common/Collective Trust Funds (g):
        Cash/Cash Equivalents572  
        Equity Securities - U.S.52,123  
        Equity Securities - International27,444  
        Fixed Income42,137  
122,276  
Subtotal measured at net asset value practical expedient$137,567  
     Total Fair Value$160,285  



(a)This category represents short-term investment funds held for the purpose of funding disbursement payment arrangements.  Underlying assets are valued based on quoted prices in active markets, or where quoted prices are not available, based on models using observable market information. Since not all values can be obtained from quoted prices in active markets, these funds are classified as Level 2 investments.

(b)This category of equity investments represents a managed portfolio of common stock investments in five sectors: telecommunications, electric utilities, gas utilities, water and energy. These common stocks are actively traded on exchanges and price quotes for these shares are readily available. These common stocks are classified as Level 1 investments.

(c)This category represents SJI’s Group Annuity contracts with a nationally recognized life insurance company. The contracts are the assets of the plan, while the underlying assets of the contracts are owned by the contract holder. Valuation is based on a formula and calculation specified within the contract. Since the valuation is based on the reporting entity’s own assumptions, these contracts are classified as Level 3 investments.

(d)This category represents investments using a value-oriented fixed income strategy that invests primarily in a diversified mix of U.S. dollar-denominated investment-grade fixed income securities, with a predominant focus on investment-grade securities across all market sectors and maturities, as well as other alternatives such as high-yield bonds, emerging markets debt, and non-dollar bonds.
(e)This category represents a limited partnership which includes several investments in U.S. leveraged buyout, venture capital, and special situation funds. Fund valuations are reported on a 90 to 120 day lag and, therefore, the value reported herein represents the market value as of June or September 30, 2019 and 2018, respectively, with cash flow changes through December applied. The fund’s investments are stated at fair value, which is generally based on the valuations provided by the general partners or managers of such investments.

130

Asset CategoryTotal Level 1 Level 2 Level 3
As of December 31, 2016:       
Cash / Cash Equivalents:       
Cash$52
 $52
 —
 $—
   Common/Collective Trust Funds (a)376
 —
 376
 —
   STIF-Type Instrument (b)1,168
 —
 1,168
 —
Equity securities:       
   Common/Collective Trust Funds – U.S. (a)42,369
 —
 42,369
 —
   Common/Collective Trust Funds – International (a)27,017
 —
 27,017
 —
   U.S. Large-Cap (c)14,523
 14,523
 —
 —
   U.S. Mid-Cap (c)2,024
 2,024
 —
 —
   International (c)2,727
 2,727
 —
 —
Fixed Income:       
   Common/Collective Trust Funds (a)44,873
 —
 44,873
 —
   Guaranteed Insurance Contract (d)7,930
 —
 —
 7,930
Other types of investments:       
   Private Equity Fund (e)4,164
 —
 —
 4,164
   Common/Collective Trust Fund – Real Estate (f)7,506
 —
 —
 7,506
Total$154,729
 $19,326
 $115,803
 $19,600
(f)This category represents real estate common/collective trust fund investments through a commingled employee benefit trust. These commingled funds are part of a direct investment in a pool of real estate properties. These funds are valued by investment managers on a periodic basis using pricing models that use independent appraisals from sources with professional qualifications.

(a)This category represents common/collective trust fund investments through a commingled employee benefit trust (excluding real estate). These commingled funds are not traded publicly; however, the majority of the underlying assets held in these funds are stocks and bonds that are traded on active markets; prices for these assets are readily observable. Also included in these funds are interest rate swaps, asset backed securities, mortgage backed securities and other investments with observable market values. Holdings in the commingled funds are classified as Level 2 investments.

(b)This category represents short-term investment funds held for the purpose of funding disbursement payment arrangements.  Underlying assets are valued based on quoted prices in active markets, or where quoted prices are not available, based on models using observable market information. Since not all values can be obtained from quoted prices in active markets, these funds are classified as Level 2 investments.

(c)This category of equity investments represents a managed portfolio of common stock investments in five sectors: telecommunications, electric utilities, gas utilities, water and energy. These common stocks are actively traded on exchanges and price quotes for these shares are readily available. These common stocks are classified as Level 1 investments.

(d)This category represents SJI’s Group Annuity contracts with a nationally recognized life insurance company. The contracts are the assets of the plan, while the underlying assets of the contracts are owned by the contract holder. Valuation is based on a formula and calculation specified within the contract. Since the valuation is based on the reporting entity’s own assumptions, these contracts are classified as Level 3 investments.

(e)This category represents a limited partnership which includes several investments in U.S. leveraged buyout, venture capital, and special situation funds. Fund valuations are reported on a 90 to 120 day lag and, therefore, the value reported herein represents the market value as of June or September 30, 2017 and 2016, respectively, with cash flow changes through December applied. The fund’s investments are stated at fair value, which is generally based on the valuations provided by the general partners or managers of such investments. Fund investments are illiquid and resale is restricted. These funds are classified as Level 3 investments.

(f)This category represents real estate common/collective trust fund investments through a commingled employee benefit trust. These commingled funds are part of a direct investment in a pool of real estate properties. These funds are valued by investment managers on a periodic basis using pricing models that use independent appraisals from sources with professional qualifications. Since these valuation inputs are not highly observable, the real estate funds are classified as Level 3 investments.


(g)This category represents common/collective trust fund investments through a commingled employee benefit trust (excluding real estate). These commingled funds are not traded publicly; however, the majority of the underlying assets held in these funds are stocks and bonds that are traded on active markets. Also included in these funds are interest rate swaps, asset backed securities, mortgage backed securities and other investments with observable market values.

(h)Primarily receivables for investment securities sold.

Fair Value Measurement Using Significant
Unobservable Inputs (Level 3)
(In thousands)


SJI (includes SJG and all other consolidated subsidiaries):GuaranteedPrivate  
 InsuranceEquityReal 
 ContractFundsEstateTotal
Balance at January 1, 2018$9,211  $—  $—  $9,211  
   Actual return on plan assets:
      Relating to assets still held at the reporting date(53) —  —  (53) 
      Relating to assets sold during the period13  —  —  13  
   Purchases, Sales and Settlements(718) —  —  (718) 
Balance at December 31, 20188,453  —  —  8,453  
   Actual return on plan assets:—  —  —  
      Relating to assets still held at the reporting date144  —  —  144  
      Relating to assets sold during the period226  —  —  226  
   Purchases, Sales and Settlements(6,067) —  —  (6,067) 
Balance at December 31, 2019$2,756  $—  $—  $2,756  


SJG:
Guaranteed
Insurance
Contract
Private
Equity
Funds		Real
Estate		Total
Balance at January 1, 2018$7,429  $—  $—  $7,429  
Actual return on plan assets:         
Relating to assets still held at the reporting date98  —  —  98  
Relating to assets sold during the period11  —  —  11  
Purchases, Sales and Settlements(591) —  —  (591) 
Balance at December 31, 2018$6,947  $—  $—  $6,947  
Actual return on plan assets:   
Relating to assets still held at the reporting date(34) —  —  (34) 
Relating to assets sold during the period182  —  —  182  
Purchases, Sales and Settlements(4,879) —  —  (4,879) 
Balance at December 31, 2019$2,216  $—  $—  $2,216  


131
SJI (includes SJG and all other consolidated subsidiaries):Guaranteed   Private    
 Insurance Hedge Equity Real  
 Contract Funds Funds Estate Total
          
Balance at January 1, 2016$9,960
 $4,159
 $4,312
 $8,515
 $26,946
   Actual return on plan assets:         
      Relating to assets still held at the reporting date541
 (67) (140) 680
 1,014
      Relating to assets sold during the period14
 —
 245
 —
 259
   Purchases, Sales and Settlements(801) (4,092) 683
 —
 (4,210)
Balance at December 31, 20169,714
 —
 5,100
 9,195
 24,009
   Actual return on plan assets:

 

 

 

 

      Relating to assets still held at the reporting date245
 

 (214) 618
 649
      Relating to assets sold during the period12
 —
 491
 —
 503
   Purchases, Sales and Settlements(760) 

 1,734
 —
 974
Balance at December 31, 2017$9,211
 $—
 $7,111
 $9,813
 $26,135



SJG:
Guaranteed
Insurance
Contract
 
Hedge
Funds
 
Private
Equity
Funds
 
Real
Estate
 Total
Balance at January 1, 2016$8,031
 $3,353
 $3,477
 $6,866
 $21,727
Actual return on plan assets: 
  
  
  
  
Relating to assets still held at the reporting date541
 (13) (71) 640
 1,097
Relating to assets sold during the period12
 —
 200
 —
 212
Purchases, Sales and Settlements(654) (3,340) 558
 —
 (3,436)
Balance at December 31, 2016$7,930
 $—
 $4,164
 $7,506
 $19,600
Actual return on plan assets: 
  
  
  
  
Relating to assets still held at the reporting date103
 —
 (224) 414
 293
Relating to assets sold during the period9
 —
 396
 —
 405
Purchases, Sales and Settlements(613) —
 1,399
 —
 786
Balance at December 31, 2017$7,429
 $—
 $5,735
 $7,920
 $21,084

As with the pension plan assets, SJI's and SJG's overall investment strategy for post-retirement benefit plan assets is to achieve a diversification by asset class, style of manager, and sector and industry limits to achieve investment results that match the actuarially assumed rate of return, while preserving the inflation adjusted value of the plans.  SJI and SJG have implemented this diversification strategy with a mix of common/collective trust funds, mutual funds and Company-owned life insurance policies.  The target allocations for post-retirement benefit plan assets are 30-4355-75 percent U.S. equity securities, 20-3010-20 percent international equity securities, and 32-4225-45 percent fixed income investments and 0-7 percent to all other types of investments.  Equity securities include investments in large-cap, mid-cap and small-cap companies within mutual funds or common/collective trust funds.  Fixed income securities within the common/collective trust fund include primarily investment grade, U.S. Government and mortgage-backed financial instruments. The insurance policies are backed by a series of commingled trust investments held by the insurance carrier.



132

The fair values of SJI's and SJG's other postretirement benefit plan assets at December 31, 20172019 and 20162018 by asset category are as follows (in thousands):
SJI (includes SJG and all other consolidated subsidiaries):
Asset CategoryTotalLevel 1Level 2Level 3
As of December 31, 2019:
   Cash$2,020  $2,020  $—  $—  
   Equity Securities:
      U.S. Large-Cap (a)5,585  5,585  —  —  
      U.S. Mid-Cap (a)1,038  1,038  —  —  
      U.S. Small-Cap (a) 695  695  —  —  
      U.S. International (a)5,915  5,915  —  —  
   Fixed Income:
      Core Plus Fixed Income (c)1,529  777  752  —  
      Mutual Funds - Bonds (a)2,588  2,588  —  —  
   Other Types of Investments:
      STIF-Type Instrument99  99  —  —  
Subtotal Fair Value$19,469  $18,717  $752  $—  
Measured at net asset value practical expedient:
   Company Owned Life Insurance (b)$15,820  
Subtotal measured at net asset value practical expedient$15,820  
Items to reconcile to fair value of plan assets:
   Pension Trust Receivables (d)$47,233  
     Total Fair Value$82,522  
Asset CategoryTotalLevel 1Level 2Level 3
As of December 31, 2018:
   Cash$16,720  $16,720  $—  $—  
   Other Types of Investments:
      Mutual Funds - REITS (a)$822  $822  $—  $—  
Subtotal Fair Value$17,542  $17,542  $—  $—  
Measured at net asset value practical expedient:
   Common/Collective Trust Funds (b):
        Equity Securities - U.S.$14,069  
        Equity Securities - International9,720  
        Fixed Income15,315  
   Company Owned Life Insurance (b)13,885  
Subtotal measured at net asset value practical expedient$52,989  
     Total Fair Value$70,531  


133

SJI (includes SJG and all other consolidated subsidiaries):       
Asset CategoryTotal Level 1 Level 2 Level 3
As of December 31, 2017:       
   Cash$—
 $—
 $—
 $—
   Equity Securities:

 
 
 
      Common/Collective Trust Funds - U.S. (a)15,101
 —
 15,101
 —
      Common/Collective Trust Funds - International (a)11,378
 —
 11,378
 —
      Mutual Fund - U.S. (b)—
 —
 —
 —
      Mutual Funds - International (b)—
 —
 —
 —
   Fixed Income:

 
 

 

      Common/Collective Trust Funds - Bonds (a)15,272
 —
 15,272
 —
      Mutual Funds - Bonds (b)—
 —
 —
 —
   Other Types of Investments:       
      Mutual Funds - REITS (b)864
 864
 —
 —
      Company Owned Life Insurance (c)15,307
 —
 15,307
 —
Total$57,922
 $864
 $57,058
 $—
        
Asset CategoryTotal Level 1 Level 2 Level 3
As of December 31, 2016:       
   Cash$—
 $—
 $—
 $—
   Equity Securities:       
      Common/Collective Trust Funds - U.S. (a)14,878
 —
 14,878
 —
      Common/Collective Trust Funds - International (a)8,674
 —
 8,674
 —
      Mutual Fund - U.S. (b)—
 —
 —
 —
      Mutual Funds - International (b)—
 —
 —
 —
   Fixed Income:       
      Common/Collective Trust Funds - Bonds (a)13,537
 —
 13,537
 —
      Mutual Funds - Bonds (b)—
 —
 —
 —
   Other Types of Investments:       
      Mutual Funds - REITS (b)—
 —
 —
 —
      Company Owned Life Insurance (c)13,443
 —
 13,443
 —
Total$50,532
 $—
 $50,532
 $—
SJG:
Asset CategoryTotalLevel 1Level 2Level 3
As of December 31, 2019
Cash$1,895  $1,895  $—  $—  
Subtotal Fair Value$1,895  $1,895  $—  $—  
Measured at net asset value practical expedient:
   Company Owned Life Insurance (b)14,843  
Subtotal measured at net asset value practical expedient$14,843  
Items to reconcile to fair value of plan assets:
   Pension Trust Receivables (d)42,452  
     Total Fair Value$59,190  
Asset CategoryTotalLevel 1Level 2Level 3
As of December 31, 2018
Cash$859  $859  $—  $—  
  Other Types of Investments:
      Mutual Funds - REITS (a)$740  $740  $—  $—  
Subtotal Fair Value$1,599  $1,599  $—  $—  
Measured at net asset value practical expedient:
   Common/Collective Trust Funds (b):
        Equity Securities - U.S.$12,645  
        Equity Securities - International8,735  
        Fixed Income13,764  
   Company Owned Life Insurance (b)13,027  
Subtotal measured at net asset value practical expedient$48,171  
     Total Fair Value$49,770  


(a)This category represents mutual fund investments. The mutual funds are actively traded on exchanges and price quotes for the shares are readily available. These mutual funds are classified as Level 1 investments.

(b)This category represents common/collective trust fund investments through a commingled employee benefit trust (excluding real estate). These commingled funds are not traded publicly; however, the majority of the underlying assets held in these funds are stocks and bonds that are traded on active markets. Also included in these funds are interest rate swaps, asset backed securities, mortgage backed securities and other investments with observable market values. This category also represents Company-owned life insurance policies with a nationally known life insurance company. The value of these policies is backed by a series of common/collective trust funds held by the insurance carrier.

(c)This category represents investments using a value-oriented fixed income strategy that invests primarily in a diversified mix of U.S. dollar-denominated investment-grade fixed income securities, with a predominant focus on investment-grade securities across all market sectors and maturities, as well as other alternatives such as high-yield bonds, emerging markets debt, and non-dollar bonds.

(d)Primarily receivables for investment securities sold.

134
SJG:       
Asset CategoryTotal Level 1 Level 2 Level 3
As of December 31, 2017       
Cash$—
 $—
 $—
 $—
Equity Securities:       
Common/Collective Trust Funds - U.S. (a)13,572
 —
 13,572
 —
          Common/Collective Trust Funds - International (a)10,226
 —
 10,226
 —
Mutual Fund - U.S. (b)—
 —
 —
 —
       Mutual Funds - International (b)—
 —
 —
 —
Fixed Income:       
Common/Collective Trust Funds - Bonds (a)13,726
 —
 13,726
 —
  Mutual Funds - Bonds (b)—
 —
 —
 —
  Other Types of Investments:       
  Mutual Funds - REITS (b)777
 777
 —
 —
  Company Owned Life Insurance (c)14,362
 —
 14,362
 —
Total$52,663
 $777
 $51,886
 $—
        
Asset CategoryTotal Level 1 Level 2 Level 3
As of December 31, 2016       
Cash$—
 $—
 $—
 $—
Equity Securities:       
Common/Collective Trust Funds - U.S. (a)13,372
 —
 13,372
 —
          Common/Collective Trust Funds - International (a)7,796
 —
 7,796
 —
Mutual Fund - U.S. (b)—
 —
 —
 —
       Mutual Funds - International (b)—
 —
 —
 —
Fixed Income:       
Common/Collective Trust Funds - Bonds (a)12,167
 —
 12,167
 —
  Mutual Funds - Bonds (b)—
 —
 —
 —
  Other Types of Investments:       
  Mutual Funds - REITS (b)—
 —
 —
 —
  Company Owned Life Insurance (c)12,613
 —
 12,613
 —
Total$45,948
 $—
 $45,948
 $—


(a)This category represents common/collective trust fund investments through a commingled employee benefit trust (excluding real estate).  These commingled funds are not traded publicly; however, the majority of the underlying assets held in these funds are stocks and bonds that are traded on active markets and prices for these assets are readily observable. Also included in these funds are interest rate swaps, asset backed securities, mortgage backed securities and other investments with observable market values. Holdings in these commingled funds are classified as Level 2 investments.

(b)This category represents mutual fund investments. The mutual funds are actively traded on exchanges and price quotes for the shares are readily available. These mutual funds are classified as Level 1 investments.

(c)This category represents Company-owned life insurance policies with a nationally known life insurance company. The value of these policies is backed by a series of common/collective trust funds held by the insurance carrier similar to category (a) above. Holdings in these insurance policies are classified as Level 2 investments.


FUTURE BENEFIT PAYMENTS - The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid during the following years (in thousands):


SJI (includes SJG and all other consolidated subsidiaries):Pension BenefitsOther Postretirement Benefits
2020$23,181  $5,574  
2021$22,520  $5,519  
2022$23,234  $5,414  
2023$23,795  $5,283  
2024$24,434  $5,009  
2025 - 2029$131,577  $21,397  
SJI (includes SJG and all other consolidated subsidiaries):Pension Benefits Other Postretirement Benefits
2018$12,596
 $4,291
2019$13,535
 $4,380
2020$14,180
 $4,499
2021$14,851
 $4,503
2022$15,937
 $4,513
2023 - 2027$90,714
 $20,683

SJG:Pension Benefits
Other
Postretirement Benefits
2020$13,078  $3,818  
2021$13,464  $3,747  
2022$13,890  $3,666  
2023$14,319  $3,598  
2024$14,985  $3,415  
2025 - 2029$84,989  $14,366  
SJG:Pension Benefits 
Other
Postretirement Benefits
2018$10,451
 $3,434
2019$11,349
 $3,587
2020$11,917
 $3,710
2021$12,495
 $3,726
2022$13,489
 $3,752
2023 - 2027$77,033
 $17,172


CONTRIBUTIONS - SJI contributed $10.0 million to the pension plans in January 2017, of which SJG contributed $8.0 million. SJI and SJG did not make contributions to its employee pension plans in 2016. SJI contributed $15.0 million to the pension plans in 2015, of which SJG contributed $12.0 million.2018 or 2019. Payments related to the unfunded SERP plan for SJI and SJG in 2019, 2018 and 2017 2016 and 2015 were $2.4$4.1 million, $2.3$2.7 million and $2.0$2.4 million, respectively. SERP payments for SJI and SJG are expected to approximate $2.4$3.7 million in 2018.2020. Prior to the base rate case settlement in October 2017, SJG also had a regulatory obligation to contribute approximately $3.6 million annually to its other postretirement benefit plans’ trusts, less direct costs incurred. The recentOctober 2017 rate case settlement (see Note 11) allows SJG to modify the future requirement level up to a limit that represents full funding of its obligation and to the maximum tax deduction allowed.


As part of the Acquisition, SJI acquired the existing pension and other post-employment benefit plans.  The plans include a qualified defined benefit, trusteed, pension plan covering most eligible employees.  The qualified pension plan is funded in accordance with requirements of the ERISA.  The Company also provides certain non-qualified defined benefit and defined contribution pension plans for a selected group of the Company's management and highly compensated employees.  Benefits under these non-qualified pension plans are funded on a cash basis.  In addition,  the entities also have a postretirement benefit plan, which provides certain medical care and life insurance benefits for eligible retired employees through a postretirement benefit plan.  In 2018, SJI's Pension and Other Postretirement Benefits Liabilities balance was increased by $3.2 million, which is the fair value of the acquired ETG and ELK Pension and Other Postretirement Benefits Liabilities at the time of the acquisition. The value of ETG and ELK's Pension and Other Postretirement Benefits Liabilities as of December 31, 2018 is $5.1 million.

135

DEFINED CONTRIBUTION PLAN - SJI and SJG offer an Employees' Retirementa Savings Plan (Savings Plan) to eligible employees.  For employees eligible for participation in the defined benefit pension plan, SJI and SJG match 50% of participants' contributions up to 6%of base compensation. For employees who are not eligible for participation in the defined benefit pension plans, SJI and SJG match 50% of participants' contributions up to 8% of base compensation. Employees not eligible for the pension plans also receive a year-end contribution of $1,500, if 10 or fewer years of service, or $2,000, if more than 10 years of service. The amount expensed and contributed for the matching provision of the Savings Plan for SJI approximated $2.6$3.4 million, , $2.3$3.3 million and $2.1$2.6 million for the years ended December 31, 2017, 20162019, 2018 and 2015,2017, respectively, and $1.6$1.2 million, $1.3$1.8 million and $1.2$1.6 million for SJG for the years ended December 31, 2019, 2018 and 2017, 2016 and 2015, respectively.



13.LINES OF CREDIT:
13. LINES OF CREDIT:
 
Credit facilities and available liquidity as of December 31, 20172019 were as follows (in thousands):


CompanyTotal FacilityUsageAvailable LiquidityExpiration Date
SJI:    
   SJI Syndicated Revolving Credit Facility$500,000  $432,600  (A)$67,400  August 2022
   Revolving Credit Facility50,000  50,000  —  September 2020
   Term Loan Credit Agreement100,000  100,000  —  September 2020
Total SJI650,000  582,600  67,400   
SJG:    
   Commercial Paper Program/Revolving Credit
   Facility
200,000  172,100  (B)27,900  August 2022
   Uncommitted Bank Line10,000  —  10,000  September 2020
Total SJG210,000  172,100  37,900   
ETG/ELK:
   ETG/ELK Revolving Credit Facility200,000  105,300  (C)94,700  June 2021
Total$1,060,000  $860,000  $200,000   
Company
Total Facility
Usage
Available Liquidity
Expiration Date 
SJI:
 
 
 
  
Syndicated Revolving Credit Facility
$400,000

$251,000
(A)$149,000

August 2022(C)
Revolving Credit Facility
50,000

50,000

—

September 2019(D)
 










 
Total SJI
450,000

301,000

149,000

  
 










 
SJG:
 
 
 
  
 







 
Commercial Paper Program/Revolving Credit Facility
200,000

52,800
(B)147,200

August 2022(E)
Uncommitted Bank Line
10,000

—

10,000

August 2018 
 










 
Total SJG
210,000

52,800

157,200

  
 










 
Total
$660,000

$353,800

$306,200

  


(A) Includes letters of credit outstanding in the amount of $6.6$9.5 million.

(B) Includes letters of credit outstanding in the amount of $0.8 million.

(C) Includes letters of credit outstanding in the amount of $1.0 million.

For SJI, the $860.0 million of usage in the table above, less the letters of credit noted in (A)-(C), equal the $848.7 million recorded as Notes Payable on the consolidated balance sheet as of December 31, 2019. For SJG, the $172.1 million of usage in the table above, less the letters of credit noted in (B), equal the $171.3 million recorded as Notes Payable on the balance sheet as of December 31, 2019.

In August 2017,June 2019, SJI entered into an amendment to its Five Year Revolving Credit Agreement ("Credit Agreement"), expiring in August 2022, that increased by $100.0 million the amount SJI can borrow under the Credit Agreement in the form of revolving loans from a five year, unsecuredtotal aggregate amount of $400.0 million to $500.0 million. In addition, as part of the total $500.0 million extension of credit, the Credit Agreement provides for swingline loans (in an amount not to exceed an aggregate of $50.0 million) and letters of credit (in an amount not to exceed an aggregate of $200.0 million), each at the applicable interest rates specified in the Credit Agreement. Subject to certain conditions set forth in the Credit Agreement, the Company may increase the revolving credit facility up to a maximum aggregate amount of $100.0 million (for a total facility of up to $600.0 million), although no lender is obligated to increase its commitment.

136

On September 23, 2019, SJI entered into an unsecured $100.0 million term loan credit agreement. The entire amount was borrowed on September 23, 2019. The maturity date of the term loan is September 18, 2020. Any amounts repaid prior to the maturity date cannot be reborrowed. The term loan bears interest at a variable base rate or a variable LIBOR rate, at the Company’s election.

SJI (as a guarantor to ELK's obligation under this revolving credit agreement), ETG and ELK (as Borrowers) have a $200.0 million, two-year revolving credit agreement which is syndicated amongwith several banks. In connection with this agreement, SJI terminated its previous $400.0 millionlenders. The revolving credit agreement.

(D) In September 2017, SJIagreement provides for the extension of credit to the Borrowers in a total aggregate amount of $200.0 million ($190.0 million for ETG; $10.0 million for ELK, which was amended during 2019 pursuant to Section 2.03(b) of the Second Amendment to Two-Year Revolving Credit Agreement and Extension Agreement), in the form of revolving loans up to a full amount of $200.0 million, swingline loans in an unsecuredamount not to exceed an aggregate of $20.0 million and letters of credit in an amount not to exceed an aggregate of $50.0 million, each at the applicable interest rates specified in the revolving credit agreement. Subject to certain conditions set forth in the revolving credit agreement, ETG may increase the revolving credit facility for two years. Theup to a maximum aggregate amount of $50.0 million (for a total revolving facility now terminates in September 2019.

(E)of up to $250.0 million). In August 2017, SJG entered into a five year, unsecured $200.0 millionJune 2019, this revolving credit agreement which is syndicated among several banks. In connectionwas amended to add SJIU as an additional Borrower and to extend the termination date from June 2020 to June 2021. This facility contains one financial covenant, limiting the ratio of indebtedness to total capitalization (as defined in the credit agreement) of each Borrower to not more than 0.70 to 1, measured at the end of each fiscal quarter. ETG and ELK were in compliance with this agreement, SJG terminated its previous $200.0 million revolving credit agreement.covenant at December 31, 2019.


The SJGUtilities' facilities are restricted as to use and availability specifically to SJG;the respective Utilities; however, if necessary, the SJI facilities can also be used to support SJG’sthe liquidity needs.needs of the Utilities. All committed facilities contain one financial covenant limiting the ratio of indebtedness to total capitalization of the applicable borrowers (as defined in the respective credit agreements), measured on a quarterly basis. SJI and the Utilities were in compliance with these covenants as of December 31, 2019. Borrowings under these credit facilities are at market rates.

SJI's weighted average interest rate on these borrowings (which includes SJG and ETG/ELK), which changes daily, was 2.46%2.67%, 1.47%3.32% and 1.13%2.46% at December 31, 2017, 20162019, 2018 and 2015,2017, respectively. SJG's weighted average interest rate on these borrowings, which changes daily, was 1.88%1.99%, 0.97%2.96% and 0.66%1.88% at December 31, 2017, 20162019, 2018 and 2015,2017, respectively.


SJI's average borrowings outstanding under these credit facilities (which includes SJG)SJG and ETG/ELK), not including letters of credit, during the years ended December 31, 20172019 and 20162018 were $276.7$560.2 million and $321.9$265.5 million, respectively. The maximum amounts outstanding under these credit facilities (which includes SJG)SJG and ETG/ELK), not including letters of credit, during the years ended December 31, 20172019 and 20162018 were $373.8$907.5 million and $467.7$497.0 million, respectively.


SJG's average borrowings outstanding under its credit facilities, not including letters of credit, during the years ended December 31, 20172019 and 20162018 were $17.6$113.3 million and $71.5$86.0 million, respectively. The maximum amount outstanding under these credit facilities, not including letters of credit, during the years ended December 31, 20172019 and 20162018 were $110.1$196.5 million and $141.7$177.0 million, respectively.



The SJI and SJGthe Utilities principal credit facilities are provided by a syndicate of banksbanks. The NPA for Senior Unsecured Notes issued by SJI contains a financial covenant limiting the ratio of indebtedness to total capitalization (as defined in the respective NPA or credit agreement) to not more than 0.70 to 1, measured at the end of each fiscal quarter. For SJI, the equity units are treated as equity (as opposed to how they are classified on the consolidated balance sheet, as long-term debt) for purposes of the covenant calculation. SJI and containSJG were in compliance with this covenant as of December 31, 2019. However, one SJG bank facility still contains a financial covenant limiting the ratio of indebtedness to total capitalization (as defined in the respective credit agreements)agreement) to not more than 0.70 to 1, measured at the end of each fiscal quarter. However, as of December 31, 2017, several bank facilities for both SJI and SJG, as well as Senior Unsecured Notes issued by SJI, still contained one financial covenant limiting the ratio of indebtedness to total capitalization (as defined in the respective credit agreements) to not more than 0.65 to 1, measured at the end of each fiscal quarter. As a result, as of December 31, 2017, both SJI and SJG needed tomust ensure that the ratio of indebtedness to total capitalization (as defined in the respective credit agreements) didagreement) does not exceed 0.65 to 1. SJI and1, as measured at the end of each fiscal quarter. SJG wereis was in compliance with these covenantsthis covenant as of December 31, 2017. All of SJI's bank facilities and Senior Unsecured Notes were amended to the new ratio in January 2018.2019.

SJG has a commercial paper program under which SJG may issue short-term, unsecured promissorypromissory notes to qualified investors up to a maximum aggregate amount outstanding at any time of $200.0 million.$200.0 million.  The notes have fixed maturities which vary by note, but may not exceed 270 days from the date of issue. Proceeds from the notes are used for general corporate purposes.  SJG uses the commercial paper program in tandem with the new $200.0its $200.0 million revolving credit facility and does not expect the principal amount of borrowings outstanding under the commercial paper program and the credit facility at any time to exceed an aggregate of $200.0 million.$200.0 million.



14.LONG-TERM DEBT:

137

14. LONG-TERM DEBT:

Outstanding Long-Term Debt at December 31 consisted of the following:
20192018
Long-Term Debt (A):
    SJG:
        First Mortgage Bonds: (B)
5.587%  Series due 2019 (C)—  10,000  
3.00%  Series due 2024 (D)50,000  50,000  
3.03%  Series due 2024 (E)35,000  35,000  
3.63%  Series due 2025 (F)5,455  6,364  
4.84%  Series due 2026 (G)15,000  15,000  
4.93%  Series due 2026 (H)45,000  45,000  
4.03%  Series due 2027 (H)45,000  45,000  
4.01%  Series due 2030 (I)34,000  42,000  
4.23%  Series due 203030,000  30,000  
3.74%  Series due 2032 (J)35,000  35,000  
5.55%  Series due 203332,000  32,000  
6.213%  Series due 203410,000  10,000  
5.45%  Series due 203510,000  10,000  
3.00%  Series due 2047200,000  200,000  
        Series A 2006 Bonds at variable rates due 2036 (K)24,900  24,900  
        SJG Term Loan (L)400,000  310,000  
Total SJG Long-Term Debt Outstanding (T)$971,355  $900,264  
Less SJG Current Maturities(417,909) (18,909) 
Total SJG Long-Term Debt (T)$553,446  $881,355  
    SJI:
3.30%  Series due 2019 (M)—  60,000  
3.30%  Series due 2019 (M)—  30,000  
3.30%  Series due 2019 (M)—  50,000  
3.71%  Series C 2012 Notes due 202235,000  35,000  
3.47%  Series due 202425,000  25,000  
3.71%  Series due 202725,000  25,000  
3.57%  Series 2017A-2 due 202525,000  25,000  
3.81%  Series 2017B-2 due 202825,000  25,000  
3.43%  Series 2018A due 202190,000  90,000  
4.07%  Series 2018B due 202880,000  80,000  
4.17%  Series 2018C due 203080,000  80,000  
5.625%  Junior Subordinated Notes due 2079 (N)200,000  $—  
  Series Notes at variable rates due 2019 (M)—   40,000  
  Series Notes at variable rates due 2019 (M)—  60,000  
        South Jersey Industries Term Loan at variable rates due 2020 (O)50,000  50,000  
        Convertible Equity Units (M, P)287,500  287,500  
        Series 2018D Notes at variable rates due 2019 (Q)—  475,000  
    ETG:
        First Mortgage Bonds
4.02%  Series 2018A-1 due 2028 (R)50,000  50,000  
4.22%  Series 2018A-2 due 2033 (R)55,000  55,000  
4.29%  Series 2018A-3 due 2038 (R)150,000  150,000  
138

   2017 2016
Long-Term Debt (A):     
    South Jersey Gas Company:     
        First Mortgage Bonds: (B)     
4.657%Series due 2017 (C) —
 15,000
7.97%Series due 2018 10,000
 10,000
7.125%Series due 2018 20,000
 20,000
5.587%Series due 2019 10,000
 10,000
3.00%Series due 2024 (D) 50,000
 50,000
3.03%Series due 2024 (E) 35,000
 35,000
3.63%Series due 2025 (F) 7,273
 8,182
4.84%Series due 2026 (G) 15,000
 15,000
4.93%Series due 2026 (H) 45,000
 45,000
4.03%Series due 2027 45,000
 45,000
4.01%Series due 2030 (I) 50,000
 50,000
4.23%Series due 2030 30,000
 30,000
3.74%Series due 2032 (J) 35,000
 35,000
5.55%Series due 2033 32,000
 32,000
6.213%Series due 2034 10,000
 10,000
5.45%Series due 2035 10,000
 10,000
3.00%Series due 2047 (K) 200,000
 —
        Series A 2006 Bonds at variable rates due 2036 (L) 24,900
 24,900
        SJG Term Facility (M) 200,000
 200,000
Total SJG Long-Term Debt Outstanding (S) $829,173
 $645,082
Less SJG Current Maturities (63,809) (215,909)
Total SJG Long-Term Debt (S) $765,364
 $429,173
      
    Marina Energy LLC:  (N)     
        Series A 2001 Bonds at variable rates due 2031 $—
 $20,000
        Series B 2001 Bonds at variable rates due 2021 —
 25,000
        Series A 2006 Bonds at variable rates due 2036 —
 16,400
    South Jersey Industries:    
2.71%Series B 2012 Notes due 2017 (O) —
 16,000
3.05%Series due 2019 60,000
 60,000
3.05%Series due 2019 30,000
 30,000
3.05%Series due 2019 50,000
 50,000
3.46%Series C 2012 Notes due 2022 35,000
 35,000
3.22%Series due 2024 (P) 25,000
 —
3.46%Series due 2027 (P) 25,000
 —
  Series Notes at variable rates due 2019 (Q) 40,000
 40,000
  Series Notes at variable rates due 2019 (Q) 60,000
 60,000
    South Jersey Industries Term Loan at variable rates due 2020 (R) 50,000
 50,000
Total SJI Consolidated Long-Term Debt Outstanding (S) $1,204,173
 $1,047,482
Less SJI Consolidated Current Maturities (all at SJG) (63,809) (231,909)
Total SJI Consolidated Long-Term Debt (S) $1,140,364
 $815,573
4.37%  Series 2018A-4 due 2048 (R)200,000  200,000  
4.52%  Series 2018A-5 due 2058 (R)75,000  75,000  
2.84%  Series 2019 A-1 due 2029 (S)40,000  —  
2.84%  Series 2019 A-2 due 2029 (S)35,000  —  
2.94%  Series 2019 A-3 due 2031 (S)25,000  —  
2.94%  Series 2019 A-4 due 2031 (S)45,000  —  
Total SJI Consolidated Long-Term Debt Outstanding (T)$2,568,855  $2,867,764  
Less SJI Consolidated Current Maturities(467,909) (733,909) 
Total SJI Consolidated Long-Term Debt (T)$2,100,946  $2,133,855  


(A)Long-term debt maturities for SJI for the succeeding five years are as follows (in thousands): 2018: $63,809; 2019: $458,909; 2020: $67,909; 2021: $27,909; and 2022: $66,084. Long-term debt maturities for SJG for the succeeding five years are as follows (in thousands): 2018: $63,809; 2019: $218,909; 2020: $17,909; 2021: $27,909; and 2022: $31,084.

(A) Long-term debt maturities for SJI for the succeeding five years are as follows (in thousands): 2020: $467,909; 2021: $405,409; 2022: $66,084; 2023: $40,084; and 2024: $65,084. Long-term debt maturities for SJG for the succeeding five years are as follows (in thousands): 2020: $417,909; 2021: $27,909; 2022: $31,084; 2023: $40,084; and 2024: $40,084. Regarding the debt that is due within one year, the Company has intentions to either pay down or refinance this debt, see Note 1.
(B)In January 2017, SJG entered into a Supplemental Indenture Amending and Restating First Mortgage Indenture (the “New Mortgage”), which amended and restated in its entirety that Indenture of Mortgage dated October 1, 1947. The New Mortgage provides for the issuance by SJG of bonds, notes or other securities that are secured by a lien on substantially all of the operating properties and franchises of SJG.


(C)In July 2017, SJG redeemed at maturity $15.0 million of 4.657% Medium Term Notes (MTN's).

(B) SJG has a First Mortgage Indenture, which provides for the issuance by SJG of bonds, notes or other securities that are secured by a lien on substantially all of the operating properties and franchises of SJG.
(D)SJG has $50.0 million of 3.00% MTN's, with $10.0 million due annually beginning September 2020 with the final payment due September 2024.


(E)SJG has $35.0 million of 3.03% MTN's, with $7.0 million due annually beginning November 2020 with the final payment due November 2024.

(C) In 2019, SJG retired $10.0 million of 5.587% MTN's.
(F)SJG pays $0.9 million annually toward the principal amount of 3.63% MTN's, with the final payment to be made December 2025. As such, $0.9 million of the total outstanding amount on this debt is classified in current portion of long-term debt on the consolidated balance sheets as it is due within one year.


(G)SJG has $15.0 million of 4.84% MTN's, with $2.5 million due annually beginning March 2021 with the final payment due March 2026.

(D)SJG has $50.0 million of 3.00% MTN's, with $10.0 million due annually beginning September 2020 with the final payment due September 2024.
(H)SJG has $45.0 million of 4.93% MTN's, with $7.5 million due annually beginning June 2021 with the final payment due June 2026.


(I)SJG has $50.0 million of 4.01% MTN's with several due dates, as follows: $8.0 million each due November 2018 and 2019; $2.0 million due November 2025; $3.0 million due November 2026; $8.0 million due November 2027; and $7.0 million each due November 2028, 2029 and 2030.

(E)SJG has $35.0 million of 3.03% MTN's, with $7.0 million due annually beginning November 2020 with the final payment due November 2024.
(J)SJG has $35.0 million of 3.74% MTN's, with $3.175 million due annually beginning April 2022 with final payment due April 2032.


(K)In January 2017, SJG issued $200.0 million aggregate principal amount of MTN's, Series E, 2017, due January 2047, with principal repayments beginning in 2025. The MTN's bear interest at an annual rate of 3.0% payable semiannually. Proceeds were used to pay down the $200.0 million multiple-draw term facility referenced in (M) below, which was set to expire in June 2017.

(F)SJG pays $0.9 million annually toward the principal amount of 3.63% MTN's, with the final payment to be made December 2025. As such, $0.9 million of the total outstanding amount on this debt is classified in current portion of long-term debt on the consolidated balance sheets as it is due within one year.
(L)These variable rate demand bonds bear interest at a floating rate that resets weekly. The interest rate as of December 31, 2017 was 1.66%. Liquidity support on these bonds is provided under a separate letter of credit facility that expires in August 2018; as such, these bonds are recorded in current portion of long-term debt on the consolidated balance sheets. These bonds contain no financial covenants.


(M)SJG had a $200.0 million multiple-draw term facility offered by a syndicate of banks which was set to expire in June 2017. The total amount outstanding under this facility at December 31, 2016 was $200.0 million, which was classified in current portion of long-term debt on the consolidated balance sheets as it was due within one year. This facility bore interest at a floating rate based on LIBOR plus a spread determined by SJG's credit ratings. In January 2017, this facility was paid down using the $200.0 million MTN's referenced in (K) above. In January 2017, SJG entered into an unsecured, $200.0 million multiple-draw term loan credit agreement ("Credit Agreement"), which is syndicated among seven banks. Term loans under the Credit Agreement bear interest at a variable base rate or a variable LIBOR rate, at SJG's election. Under the Credit Agreement, SJG can borrow up to an aggregate of $200.0 million until July 2018, of which SJG borrowed $200.0 million during 2017. All loans under the Credit Agreement become due in January 2019.

(G)SJG has $15.0 million of 4.84% MTN's, with $2.5 million due annually beginning March 2021 with the final payment due March 2026.
(N)In May 2017, Marina voluntarily redeemed bonds issued by the New Jersey Economic Development Authority (NJEDA) in an aggregate principal amount of $61.4 million, as follows:  Thermal Energy Facilities Revenue Bonds (Marina Energy LLC - 2001 Project) Series A ($20.0 million); Thermal Energy Facilities Federally Taxable Revenue Bonds (Marina Energy LLC - 2001 Project) Series B ($25.0 million); and Thermal Energy Facilities Revenue Bonds (Marina Energy LLC Project) Series 2006A ($16.4 million).  In connection with the redemptions, separate related letter of credit reimbursement agreements were terminated (see Note 15).


(O)In June 2017, SJI redeemed at maturity $16.0 million of 2.71% Senior Unsecured Notes.
(H)SJG has $45.0 million of 4.93% MTN's, with $7.5 million due annually beginning June 2021 with the final payment due June 2026. SJG also has $45.0 million of 4.03% MTN's, with $9.0 million due annually beginning in December 2023 with the final payment due in December 2027.
(P)In August 2017, SJI entered into a note purchase agreement that provides for the issuance of an aggregate of $100.0 million of MTNs. Pursuant to the agreement, SJI issued $50.0 million aggregate principal amount of MTNs, consisting of (a) $25.0 million aggregate principal amount of 3.22% Senior Notes, Series 2017A-1, due August 2024, and (b) $25.0 million aggregate principal amount of 3.46% Senior Notes, Series 2017B-1, due August 2027. SJI issued the remaining $50.0 million of MTNs in January 2018 (see Note 19).


(Q)At December 31, 2017, the floating rate on these Senior Notes was 3.01%.

(I) SJG initially entered into $42.0 million of 4.01% MTN's with several due dates, as follows: $8.0 million paid November 2019; $2.0 million due November 2025; $3.0 million due November 2026; $8.0 million due November 2027; and $7.0 million each due November 2028, 2029 and 2030.
(R)At December 31, 2017, the floating rate on this Term Loan was 2.29%.


(S)
(J) SJG has $35.0 million of 3.74% MTN's, with $3.175 million due annually beginning April 2022 with final payment due April 2032.

(K) These variable rate demand bonds bear interest at a floating rate that resets weekly. The interest rate as of December 31, 2019 was 1.05%. Liquidity support on these bonds is provided under a separate letter of credit facility that expires in August 2021. These bonds contain no financial covenants.

(L) In October 2018, SJG entered into an unsecured, $400.0 million term loan credit agreement (the “Credit Agreement”), which is syndicated among 8 banks. Under the Credit Agreement, the Company had the ability to borrow up to an aggregate of $400.0 million from time to time until October 26, 2019. All loans under the Credit Agreement become due and payable on April 26, 2020. As of December 31, 2018, SJG borrowed $310.0 million under this agreement and, during 2019, borrowed the remaining $90.0 million, resulting in total borrowings of $400.0 million as of December 31, 2019, which is recorded in current portion of long-term debt on the consolidated balance sheets.

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(M) SJI paid off the following: $60.0 million principal amount outstanding on its 3.30% Senior Notes, Series 2014A-1; $40.0 million principal amount outstanding on its Floating Rate Senior Notes, Series 2014B-1; $30.0 million principal amount outstanding on its 3.30% Senior Notes, Series 2014A-2; $50.0 million principal amount outstanding on its 3.30% Senior Notes, Series 2014A-3; and $60.0 million principal amount outstanding on its Floating Rate Senior Notes, Series 2014B-2.

(N) SJI offered and sold $200.0 million aggregate principal amount of the Company's 5.625% Junior Subordinated Notes due 2079. The total net cash proceeds, inclusive of a debt discount of $5.3 million, were $194.7 million.

(O) At December 31, 2019, the floating rate on this Term Loan was 2.88%.

(P) In April 2018, SJI completed a public offering of Equity Units for gross proceeds of $287.5 million (see Note 6). As of December 31, 2019, these Equity Units were not converted into equity.

(Q) In 2019, SJI repaid $475.0 million aggregate principal amount outstanding on its Floating Rate Senior Notes, Series 2018D.

(R) In December 2018, ETG issued $530.0 million aggregate principal amount of its First Mortgage Bonds, Series 2018A, which were issued in 5 Tranches as shown in the table above. These bonds were issued under that First Mortgage Indenture dated as of July 2, 2018 between ETG and a Trustee, as supplemented by that First Supplement dated as of December 20, 2018, pursuant to a BPA dated as of December 20, 2018 between ETG and the purchasers named therein. The proceeds from the sale of these bonds were used to repay short-term indebtedness under a previous $530.0 million, 364-day term loan credit agreement dated as of June 26, 2018 among ETG (Borrower), SJI (Guarantor), the lenders party thereto and Bank of America, N.A., as Administrative Agent. Prior to repayment, the term loans bore interest at a variable base rate or a variable LIBOR at the election of the Company.

(S) ETG entered into a Bond Purchase Agreement and issued First Mortgage Bonds, Series 2019A-1 through Series 2019A-4, in the aggregate principal amount of $145.0 million.

(T) Total SJI consolidated Long-Term Debt in the table above does not include unamortized debt issuance costs of $17.4 million and $7.6 million for the years ended December 31, 2017 and 2016, respectively. Total SJG Long-Term Debt in the table above does not include unamortized debt issuance costs of $7.3 million and $6.0 million for the years ended December 31, 2017 and 2016, respectively.

In October 2017, SJI entered into a 364-day, $2.6 billion syndicated, committed Bridge Facility to finance the acquisition of the assets of Elizabethtown Gas Company and Elkton Gas Company discussed in Note 1. In November 2017 and January 2018, as a result of amendments to various outstanding debt agreements, SJI reduced the bridge commitments to $1.7 billion, or the amount of the purchase price for the assets SJI agreed to acquire. SJI incurred $10.4 million of debt issuance costs, which, net of $2.6 million of amortization, are included in the unamortized debt issuance costs disclosedof $25.5 million and $27.0 million as of December 31, 2019 and 2018, respectively, nor does it include $5.3 million of unamortized debt discounts as of December 31, 2019. Total SJG Long-Term Debt in (S) above.the table above does not include unamortized debt issuance costs of $6.3 million and $6.8 million as of December 31, 2019 and 2018, respectively.


15.COMMITMENTS AND CONTINGENCIES:

15. COMMITMENTS AND CONTINGENCIES:

GAS SUPPLY CONTRACTS - In the normal course of business, SJG, SJRG and SJRGETG have entered into long-term contracts for natural gas supplies, firm transportation and gas storage service. The transportation and storage service agreements with interstate pipeline suppliers were made under FERC approvedFERC-approved tariffs. SJRG's cumulative obligation for demand chargesSJG's and reservation fees paid to suppliers for these services is approximately $1.3 million per month. SJG'sETG's cumulative obligation for gas supply-related demand charges and reservation fees paid to suppliers for these services averages approximately $6.0$7.7 million and $5.0 million per month, respectively, and is recovered on a current basis through the BGSS. SJRG's cumulative obligation for demand charges and reservation fees paid to suppliers for these services averages approximately $1.6 million per month.  SJRG has also committed to purchase a minimum of 604,000 dts/d and up to 954,000772,500 dts/d of natural gas, from various suppliers, for terms ranging from threefour to ten years at index based prices.


PENDING ETG has an AMA with SJRG for transportation and storage capacity to meet natural gas demands. The AMA is in effect through March 31, 2022. It also requires SJRG to pay minimum annual fees of $4.25 million to ETG and includes tiered margin sharing levels between ETG and SJRG (see Note 1).

TSA - SJI has entered into a TSA with Southern Company Gas whereby the latter will provide certain administrative and operational services. The initial TSA extended through January 2020; this was subsequently extended to no later than March 31, 2020.

LITIGATION - SJI and SJG are subject to claims, actions and other legal proceedings arising in the ordinary course of business. Neither SJI nor SJG can make any assurance as to the outcome of any of these actions but, based on an analysis of these claims and consultation with outside counsel, we do not believe that any of these claims, other than described below, would be reasonably likely to have a material impact on the business and other legal proceedings.or financial statements of SJI has been named in, among other actions, certain gas supply and capacity management contract disputes and certain product liability claims related to our former sand mining subsidiary. or SJG.


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SJI is currentlywas involved in a pricing dispute related to two2 long-term gas supply contracts. On May 8, 2017, a jury from the United States District Court for the District of Colorado returned a verdict in favor of the plaintiff supplier. On July 21, 2017, the court entered final judgment against SJG and SJRG. As a result of this ruling, SJG and SJRG havehad accrued, $20.4including interest, $22.9 million and $53.6$59.3 million, respectively, from the first quarter of 2017 through December 31, 2017. We believeSeptember 30, 2019. In April 2018, SJI filed an appeal of this judgment which was heard by the Tenth Circuit on January 22, 2019. On August 6, 2019, the Tenth Circuit issued its decision affirming the lower court’s decision and finding that SJG and SJRG breached the amountcontracts and the plaintiff is entitled to bedamages. SJI established a reserve to reflect the differences between the invoices and paid by SJG reflects a gas cost that ultimately will be recovered from SJG’s customers through adjusted rates. As such, this amount was recorded as both an Accounts Payable and a reduction of Regulatory Liabilities onamounts, in the consolidated balance sheets of both SJI and SJG as of December 31, 2017. The amount associated with SJRG was also recorded as an Accounts Payable on the consolidated balance sheets of SJI as of December 31, 2017, with charges of $49.6 million to Cost of Sales - Nonutility on the consolidated statements of income of SJI for the year ended December 31, 2017. SJI also recorded $4.0 million to Interest Charges on the consolidated statements of income for the year ended December 31, 2017.amounts noted above. The plaintiff supplier filed a second related lawsuit against SJG and SJRG in the United States District Court for the District of Colorado on December 21, 2017, alleging that SJG and SJRG have continued to breach the gas supply contracts notwithstanding the judgmentin the prior lawsuit. The plaintiff supplier is seekingsought recovery of the amounts disputed by SJI since the earlier judgment, and a declaration regarding the price under the disputed contracts going forward until the contracts terminate in October 2019. SJI moved to stay the second lawsuit

pending resolution of the post-judgment motionsThe decision in the first lawsuit is prejudicial to this second lawsuit and any appealSJI was similarly obligated to pay damages related to this breach of that lawsuit.contract claim. All legal reserves related to this second lawsuit arewere recorded as part of the accrued amounts disclosed above.

SJI was involved As a result of these judgments, SJRG paid $59.3 million in September 2019 and SJG paid $22.9 million in October 2019 to the plaintiff supplier. These cases are now concluded. We believe that the amount to be paid by SJG reflects a dispute ingas cost that ultimately will be recovered from SJG’s customers through adjusted rates through the Court of Common Pleas of Philadelphia related to a three-year capacity management contractBGSS clause. As such, the $22.9 million associated with a counterparty. The counterparty claimed that it was owed approximately $13.3 million, plus interest, from SJRG under a sharing credit within the contract. SJI settled with the counterparty for $9.5 million, which amountSJG was recorded to Costas an increase in Regulatory Assets on the consolidated balance sheets of Sales - Nonutility on SJI's consolidated statementsboth SJI and SJG as of income forDecember 31, 2019. For the yearyears ended December 31, 2017. SJI made the payment in September 2017.

SJI was also involved in a tariff rate dispute with a counterparty, whereby SJI contended that the counterparty was overcharging2019, 2018 and 2017, charges for storage demand charges over a ten-year period. In November 2017, SJI received a favorable decision from the FERC on this matter, which resulted in a total pre-tax income impact of $9.3 million. Of this amount, $7.4 million related to the actual overcharges and wasSJRG were recorded as a decrease to Cost of Sales - Nonutility on the consolidated statements of income forof SJI in the year ended December 31, 2017. The remaining $1.9amount of $0.5 million, related$4.1 million and $49.6 million, respectively. SJI also recorded $1.1 million, $1.0 million and $4.0 million to interest income and was recorded in Other IncomeInterest Charges on the consolidated statements of income for the yearyears ended December 31, 2017. SJI received2019, 2018 and 2017, respectively, related to SJRG.

In August 2018, the State of New Jersey filed a civil enforcement action against SJG and several other current and former owners of certain property in Atlantic City, NJ alleging damage to the State's natural resources and seeking payment fromfor damages to those natural resources, where SJG and its predecessors previously operated a manufactured gas plant. SJG is currently evaluating the counterparty in November 2017.merits of the State of New Jersey's allegations. At this time, SJG cannot reasonably estimate or provide an assessment of the claim or any assurance regarding its outcome. This manufactured gas plant site is currently being remediated as discussed under "Environmental Remediation Costs" below.


Liabilities related to claims are accrued when the amount or range of amounts of probable settlement costs or other charges for these claims can be reasonably estimated. For matters other than the disputes that are noted above, SJI has accrued approximately $3.0$3.1 million and $3.1$3.2 million related to all claims in the aggregate as of December 31, 20172019 and 2016,2018, respectively, of which SJG has accrued approximately $0.7 million and $0.6$0.9 million as of both December 31, 20172019 and 2016, respectively. Although SJI and SJG do not presently believe that these matters will have a material adverse effect on its business, given the inherent uncertainties in such situations, SJI and SJG can provide no assurance regarding the outcome of litigation.2018.


COLLECTIVE BARGAINING AGREEMENTS— Unionized personnel represent approximately 39%45% and 56%70% of SJI's and SJG's workforce at December 31, 2017,2019, respectively. SJI has collective bargaining agreements with unions that represent these employees: the International Brotherhood of Electrical Workers (IBEW)IBEW Local 12931293; IAM Local 76; and the International Association of Machinists and Aerospace Workers (IAM)UWUA Local 76.424.  SJG employees represented by the IBEW operate under a collective bargaining agreement that runs through February 2018, for which negotiations are still ongoing.2022. SJG's remaining unionized employees are represented by the IAM and operate under a collective bargaining agreement that runs through August 2021. ETG employees represented by the UWUA operate under a collective bargaining agreement that runs through November 2020.


GUARANTEES - As of December 31, 2017,2019, SJI, the parent company, has issued guarantees to third parties on behalf of its consolidated subsidiaries. These guarantees were issued to guarantee payment to third parties with whom SJI's consolidated subsidiaries have commodity supply contracts. As of December 31, 2017,2019, these guarantees support future firm commitments of SJI's consolidated subsidiaries and $95.7$72.3 million of the Accounts Payable already recorded on SJI's consolidated balance sheet.


As of December 31, 2017,2019, SJI had issued $6.0$11.3 million of parental guarantees on behalf of EnergyMark, an unconsolidated subsidiary. These guarantees generally expire within the next two years and were issued to enable the subsidiary to market retail natural gas.


STANDBY LETTERS OF CREDIT — As of December 31, 2017,2019, SJI provided $6.6$9.5 million of standby letters of credit through its revolving credit facility to enable SJE to market retail electricity and for various construction and operating activities. ETG provided a $1.0 million letter of credit under its revolving credit facility to support commodity trading activity. SJG provided a $0.8 million letter of credit under its revolving credit facility to support the remediation of environmental conditions at certain locations in SJG's service territory. SJG has provided $25.1 million of additional letters of credit under a separate facility outside of the revolving credit facility to support variable-rate demand bonds issued through the NJEDA to finance the expansion of SJG’s natural gas distribution system. In May 2017, Marina redeemed its variable-rate demand bonds

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CONVERTIBLE UNITS - The Company has a contract obligating the holder of the units to purchase from the Company, and for the related lettersCompany to sell to the holder for a price in cash of credit reimbursement agreements, which totaled $62.3 million, were terminated (see$50, a certain number of shares of common stock. See Note 14).6.


ENVIRONMENTAL REMEDIATION COSTS — SJG incurred and recorded costs for environmental cleanup of 12 sites where SJG or its predecessors operated gas manufacturing plants.plants SJG stopped manufacturing gas in the 1950s. ETG is subject to environmental remediation liabilities associated with 5 former manufactured gas plant sites in New Jersey. These environmental remediation expenditures are recoverable from customers through rate mechanisms approved by the BPU (see Note 10). SJI and some of its nonutility subsidiaries also recorded costs for environmental cleanup of sites where SJF previously operated a fuel oil business and Morie maintained equipment, fueling stations and storage.storage (see Note 3).


SJI successfully entered into settlements with all of its historic comprehensive general liability carriers regarding the environmental remediation expenditures at the SJG sites. Also, SJG had purchased a Cleanup Cost Cap Insurance Policy limiting the amount of remediation expenditures that SJG was required to make at 11 of its sites. This policy provided coverage up to $50.0 million, which was exhausted in 2012.



Since the early 1980s, SJI accrued environmental remediation costs of $490.7$642.6 million, of which $317.9$409.8 million was spent as of December 31, 2017.2019. The accrued amount includes the addition of costs related to five ETG sites requiring environmental remediation beginning with the date of the Acquisition (see Note 20 and ETG discussion below). SJG accrued environmental remediation costs of $473.3 million.$516.4 million, of which $301.6$385.1 million was spent as of December 31, 20172019.


The following table details the amounts expended and accrued for SJI's and SJG's environmental remediation during the last two years (in thousands):


SJI (includes SJG and all other consolidated subsidiaries):20192018
Beginning of Year$253,650  $172,855  
   Accruals15,126  58,706  
   Expenditures(35,891) (51,176) 
   Opening Balance Sheet Adjustment (See Note 20)—  73,265  
End of Year$232,885  $253,650  
SJI (includes SJG and all other consolidated subsidiaries):

2017 2016
Beginning of Year$155,013
 $126,623
   Accruals56,405
 60,713
   Expenditures(38,563) (32,323)
End of Year$172,855
 $155,013


SJG:20192018
Beginning of Year$148,071  $171,696  
   Accruals17,502  21,695  
   Expenditures(34,311) (45,320) 
End of Year$131,262  $148,071  
SJG:2017 2016
Beginning of Year$153,047
 $123,194
   Accruals55,814
 61,933
   Expenditures(37,165) (32,080)
End of Year$171,696
 $153,047


The balances are segregated between current and noncurrent on the consolidated balance sheets under the captions Current Liabilities and Deferred Credits and Other Noncurrent Liabilities.


Management estimates that undiscounted future costs to clean up SJG's sites will range from $171.7$131.3 million to $284.1 million. Six of SJG's sites comprise the majority of these estimates, the sum of the six sites range from a low of $158.2 million to a high of $275.7$231.4 million. SJG recorded the lower end of this range as a liability because a single reliable estimation point is not feasible due to the amount of uncertainty involved in the nature of projected remediation efforts and the long period over which remediation efforts will continue. Recorded amounts include estimated costs based on projected investigation and remediation work plans using existing technologies. Actual costs could differ from the estimates due to the long-term nature of the projects, changing technology, government regulations and site-specific requirements. Significant risks surrounding these estimates include unforeseen market price increases for remedial services, property owner acceptance of the selected remedy, selection, regulatory approval of the selected remedy and remedial investigative findings.

NaN of SJG's sites comprise the majority of these estimates, with future costs ranging from $122.4 million to $223.3 million. The remediation efforts at SJG's six6 most significant sites include the following:


Site 1 - Several interim remedial actions have been completed at the site. Steps remaining to remediate the balance of the site include selection of the remedial action, confirmation of regulatory compliance of the selected remedy, implementation of the approved remedy, long-term groundwater monitoring, and issuance of a Response Action Outcome.



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Site 2 - Various remedial investigation activities have been completed at this site and a final site remedy has been approved by the regulatory authority. The remedial action is underway and preparation for the next step is ongoing. Remaining steps to remediate the site include completion of the remedial action, long-term groundwater monitoring, and issuance of a Response Action Outcome.


Site 3 - Various remedial investigation activities have been completed at this site and a final site remedy has been approved by the regulatory authority. Steps remaining to remediate the site include implementation of the approved remedy, long term groundwater monitoring, and issuance of a Response Action Outcome.


Site 4 - The remedial action approved by the regulatory authority is currently being implemented.  Remaining steps to remediate the site include post remediation groundwater monitoring, ongoing operation of the product recovery system, and issuance of a Response Action Outcome.


Site 5 - Remedial investigation activities have been completed at this site and a final site remedy has been proposed to the regulatory authority. Steps remaining to remediate the site include approval of the final remedy, implementation of the approved remedy, and issuance of a Response Action Outcome.



Site 6 - The remedial action to address impacted soil was completed in 2017. Steps remaining include long-term groundwater monitoring and issuance of a Response Action Outcome.
Management estimates that undiscounted future costs to clean up ETG's sites will range from $101.1 million to $186.7 million.
The remediation efforts at ETG's five sites include the following:

Site 1 - Several interim remedial actions have been completed at the site. Steps remaining to remediate the balance of the site include selection of the remedial action for the remaining areas, confirmation of regulatory compliance of the selected remedy, implementation of the approved remedy, long-term groundwater monitoring, and issuance of a Response Action Outcome.

Site 2 - Interim remedial actions have been completed at the site. Steps to remediate the balance of the site included selection of the remedial action for the remaining areas, confirmation of regulatory compliance of the selected remedy, implementation of the approved remedy, long-term groundwater monitoring, and issuance of a Response Action Outcome.

Site 3 - Soil remediation for the on-site portion of the work has been completed and unrestricted use closure documentation is expected in 2020. Steps remaining include investigation within a city-owned park, remediation of any impacts found, and issuance of the appropriate closure documentation.

Site 4 - Soil remediation at the site has been completed. Steps remaining include long-term groundwater monitoring and issuance of a Response Action Outcome.

Site 5 - Various remedial investigation activities have been completed at the site and a final site remedy has been proposed to the regulatory authority. Remediation of offsite impacts to continue into 2020.

With Morie's sale in 1996, EMI assumed responsibility for environmental liabilities currently estimated between $0.5$0.1 million and $1.0$0.3 million. The lower end of this range has been recorded under Current Liabilities and Deferred Credits and Other Noncurrent Liabilities as of December 31, 2019. The information available on these sites is sufficient only to establish a range of probable liability and no point within the range is more likely than any other. Therefore, EMI has accrued the lower end of the range. Changes in the accrual are included in the statements of consolidated income under Loss from Discontinued Operations.


SJI and SJF estimate their potential exposure for the future remediation of five5 sites where fuel oil operations existed years ago to range from $0.6$0.4 million to $1.1$0.8 million. The lower end of this range has been recorded under Current Liabilities and Deferred Credits and Other Noncurrent Liabilities as of December 31, 2017.2019. Changes in the accrual are included in the statements of consolidated income under Loss from Discontinued Operations (SJF) or Operations Expense (SJI).


ELIZABETHTOWN GAS AND ELKTON GAS PURCHASE AGREEMENTS — In connection with the acquisition of Elizabethtown Gas and Elkton Gas as disclosed in Note 1, the Company entered into purchase agreements with Pivotal Utility Holdings, Inc., a subsidiary of Southern Company Gas (the "Seller"). The purchase agreements provide that the Seller and/or the Company may terminate the purchase agreements under certain circumstances, including (i) by mutual written consent of the Company and the Seller; (ii) by either the Company or the Seller for certain breaches of the purchase agreements that are not cured; (iii) by either the Company or the Seller if the transactions are not consummated on or before the date that is 12 months following the date of the purchase agreements, subject to a three month extension in certain circumstances; or (iv) by the Company or the Seller if any governmental entity has issued an order, decree or ruling or taken any other action restraining, enjoining or otherwise prohibiting the transactions contemplated by the purchase agreements. If the purchase agreements are terminated under any of these circumstances, or approvals by the BPU or FERC are not obtained, the Company will be required to pay the Seller a termination fee of $80.5 million.


16. DERIVATIVE INSTRUMENTS:
16.DERIVATIVE INSTRUMENTS:


Certain SJI subsidiaries, including SJG, are involved in buying, selling, transporting and storing natural gas, and buying and selling retail electricity, for their own accounts as well as managing these activities for third parties. These subsidiaries are
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subject to market risk on expected future purchases and sales due to commodity price fluctuations. SJI and SJG use a variety of derivative instruments to limit this exposure to market risk in accordance with strict corporate guidelines.  These derivative instruments include forward contracts, swap agreements, options contracts and futures contracts.


As of December 31, 2017,2019, SJI and SJG had outstanding derivative contracts as follows:
SJI ConsolidatedSJG
Derivative contracts intended to limit exposure to market risk to:
    Expected future purchases of natural gas (in MMdts)102.7  34.1 ��
    Expected future sales of natural gas (in MMdts)116.5  24.4  
    Expected future purchases of electricity (in MMmWh)0.6  —  
    Expected future sales of electricity (in MMmWh)0.5  —  
Basis and Index related net purchase/(sale) contracts (in MMdts)85.0  0.6  
 SJI ConsolidatedSJG
Derivative contracts intended to limit exposure to market risk to:  
    Expected future purchases of natural gas (in MMdts)58.8
9.7
    Expected future sales of natural gas (in MMdts)60.3
0.7
    Expected future purchases of electricity (in MMmWh)2.6
—
    Expected future sales of electricity (in MMmWh)2.1
—
   
Basis and Index related net purchase (sales) contracts (in MMdts)47.4
0.3


These contracts, which have not been designated as hedging instruments under GAAP, are measured at fair value and recorded in Derivatives - Energy Related Assets or Derivatives - Energy Related Liabilities on the consolidated balance sheets of SJI and SJG. For SJE and SJRG contracts, the net unrealized pre-tax gains (losses) for these energy-related commodity contracts are included with realized gains (losses) in Operating Revenues – Nonutility on the consolidated statements of income for SJI. These unrealized pre-tax gains (losses) gains were $(13.7)$(11.7) million, $26.9$34.5 million and $8.4$(13.7) million for the years ended December 31, 2017, 20162019, 2018 and 2015,2017, respectively. For ETG's and SJG's contracts, the costs or benefits are recoverable through the BGSS clause, subject to BPU approval. As a result, the net unrealized pre-tax gains and losses for theseSJG and ETG energy-related commodity contracts are included with realized gains and losses in Regulatory Assets or Regulatory Liabilities on the consolidated balance sheets of both SJI (ETG and SJG) and SJG. As of December 31, 20172019 and 2016,2018, SJI had $(4.0) million and $4.1 million, respectively, and SJG had $2.1 million of unrealized losses and $4.4$3.3 million, respectively, of unrealized gains respectively,(losses) included in its BGSS related to energy-related commodity contracts.


As part of its gas purchasing strategy, SJG uses financial contracts through SJRG to limit exposure to forward price risk. The costs or benefits of these short-term contracts are recoverable through SJG's BGSS clause, subject to BPU approval.


The retail gas operations of SJE transact commodities on a physical basis and typically does not directly enter into positions that financially settle. SJRG performs this risk management function for SJE and enters into the types of financial transactions noted above. The retail electric operations of SJE use forward physical and financial contracts to mitigate commodity price risk on fixed price electric contracts.


Management takes an active role in the risk management process and has developed policies and procedures that require specific administrative and business functions to assist in identifying, assessing and controlling various risks. Management reviews any open positions in accordance with strict policies to limit exposure to market risk.


SJI, including SJG, has also entered into interest rate derivatives to hedgemitigate exposure to increasing interest rates and the impact of those rates on cash flows of variable-rate debt. These interest rate derivatives some of which had been designated as hedging instruments under GAAP, are measured at fair value and recorded in Derivatives - Other on the consolidated balance sheets. Hedge accounting has been discontinued prospectively for these derivatives. As a result, anyAny unrealized gains and losses on these derivatives that were previously included in Accumulated Other Comprehensive Loss (AOCL) on the consolidated balance sheets, are being recorded in earnings over the remaining life of the derivative.

In March 2017, SJI entered into a new interest rate derivative and amended the existing interest rate derivative linked to unrealized losses previously recorded in AOCL. SJI reclassified $2.4 million of pre-tax unrealized loss in AOCL to Interest Charges on the consolidated statements of income as a result of the prior hedged transactions being deemed probable of not occurring.


For SJI and SJG interest rate derivatives, the fair value represents the amount SJI and SJG would have to pay the counterparty to terminate these contracts as of those dates.


SJG previously used derivative transactions known as “Treasury Locks” to hedge against the impact on its cash flows of possible interest rate increases on debt issued in September 2005. The initial $1.4 million cost of the Treasury Locks has been included in AOCL and is being amortized over the 30-year life of the associated debt issue. 
144

As of December 31, 2017 and December 31, 2016, the unamortized balance was approximately $0.8 million and $0.9 million, respectively.

As of December 31, 2017,2019, SJI's active interest rate swaps were as follows:


Notional AmountFixed Interest RateStart DateMaturityObligor
$20,000,000  3.049%  3/15/20173/15/2027SJI
$20,000,000  3.049%  3/15/20173/15/2027SJI
$10,000,000  3.049%  3/15/20173/15/2027SJI
$12,500,000  3.530%  12/1/20062/1/2036SJG
$12,500,000  3.430%  12/1/20062/1/2036SJG


The unrealized gains and losses on interest rate derivatives that are not designated as cash flow hedges are included in Interest Charges.Charges on the consolidated statements of income. However, for selected interest rate derivatives at SJG, management believes that, subject to BPU approval, the market value upon termination can be recovered in rates and, therefore, these unrealized losses have been included in Other Regulatory Assets in the consolidated balance sheets.


The fair values of all derivative instruments, as reflected in the consolidated balance sheets as of December 31, are as follows (in thousands):


SJI (includes SJG and all other consolidated subsidiaries):
Derivatives not designated as hedging instruments under GAAPDecember 31, 2019December 31, 2018
 AssetsLiabilitiesAssetsLiabilities
Energy-related commodity contracts:    
Derivatives - Energy Related - Current$52,892  $41,965  $54,021  $24,134  
Derivatives - Energy Related - Non-Current7,243  8,206  7,169  7,256  
Interest rate contracts:    
Derivatives - Other - Current—  1,155  —  588  
Derivatives - Other - Noncurrent—  11,505  —  7,285  
Total derivatives not designated as hedging instruments under GAAP$60,135  $62,831  $61,190  $39,263  
Total Derivatives$60,135  $62,831  $61,190  $39,263  

SJG:
Derivatives not designated as hedging instruments under GAAPDecember 31, 2019December 31, 2018
 AssetsLiabilitiesAssetsLiabilities
Energy-related commodity contracts:    
Derivatives – Energy Related – Current$16,904  $14,671  $5,464  $2,146  
Derivatives – Energy Related – Non-Current5  95  15  43  
Interest rate contracts:    
Derivatives - Other - Current—  488  —  343  
Derivatives - Other - Non-Current—  7,368  —  5,524  
Total derivatives not designated as hedging instruments under GAAP16,909  22,622  5,479  8,056  
Total Derivatives$16,909  $22,622  $5,479  $8,056  


145
SJI (includes SJG and all other consolidated subsidiaries):        
Derivatives not designated as hedging instruments under GAAP December 31, 2017 December 31, 2016
  Assets Liabilities Assets Liabilities
Energy-related commodity contracts:        
Derivatives - Energy Related - Current $42,139
 $46,938
 $72,391
 $60,082
Derivatives - Energy Related - Non-Current 5,988
 6,025
 8,502
 4,540
Interest rate contracts:      
  
Derivatives - Other - Current 
 748
 —
 681
Derivatives - Other - Noncurrent 
 9,622
 —
 9,349
Total derivatives not designated as hedging instruments under GAAP $48,127
 $63,333
 $80,893
 $74,652
         
Total Derivatives $48,127
 $63,333
 $80,893
 $74,652


SJG:        
Derivatives not designated as hedging instruments under GAAP 2017 2016
  Assets Liabilities Assets Liabilities
Energy-related commodity contracts:        
Derivatives – Energy Related – Current $7,327
 $9,270
 $5,434
 $1,372
Derivatives – Energy Related – Non-Current 5
 170
 373
 —
Interest rate contracts:      
  
Derivatives - Other - Current —
 389
 —
 386
Derivatives - Other - Non-Current —
 6,639
 —
 6,979
Total derivatives not designated as hedging instruments under GAAP 7,332
 16,468
 5,807
 8,737
         
Total Derivatives $7,332
 $16,468
 $5,807
 $8,737


SJI and SJG enter into derivative contracts with counterparties, some of which are subject to master netting arrangements, which allow net settlements under certain conditions. These derivatives are presented at gross fair values on the consolidated balance sheets.
As of December 31, 20172019 and2016,2018, information related to these offsetting arrangements were as follows (in thousands):
As of December 31, 2019
DescriptionGross amounts of recognized assets/liabilitiesGross amount offset in the balance sheetNet amounts of assets/liabilities in balance sheetGross amounts not offset in the balance sheetNet amount
Financial InstrumentsCash Collateral Posted
SJI (includes SJG and all other consolidated subsidiaries):
Derivatives - Energy Related Assets$60,135  $—  $60,135  $(32,185) (A) $—  $27,950  
Derivatives - Energy Related Liabilities$(50,171) $—  $(50,171) $32,185  (B) $12,878  $(5,108) 
Derivatives - Other$(12,660) $—  $(12,660) $—  $—  $(12,660) 
SJG:
Derivatives - Energy Related Assets$16,909  $—  $16,909  $(11,860) (A) $—  $5,049  
Derivatives - Energy Related Liabilities$(14,766) $—  $(14,766) $11,860  (B) $2,706  $(200) 
Derivatives - Other$(7,856) $—  $(7,856) $—  $—  $(7,856) 
As of December 31, 2017            
Description Gross amounts of recognized assets/liabilities Gross amount offset in the balance sheet Net amounts of assets/liabilities in balance sheet Gross amounts not offset in the balance sheet Net amount
    Financial Instruments Cash Collateral Posted 
SJI (includes SJG and all other consolidated subsidiaries):
Derivatives - Energy Related Assets $48,127
 $—
 $48,127
 $(24,849)(A)$—
 $23,278
Derivatives - Energy Related Liabilities $(52,963) $—
 $(52,963) $24,849
(B)$8,832
 $(19,282)
Derivatives - Other $(10,370) $—
 $(10,370) $—
 $—
 $(10,370)
SJG:            
Derivatives - Energy Related Assets $7,332
 $—
 $7,332
 $(208)(A)$—
 $7,124
Derivatives - Energy Related Liabilities $(9,440) $—
 $(9,440) $208
(B)$1,543
 $(7,689)
Derivatives - Other $(7,028) $—
 $(7,028) $—
 $—
 $(7,028)


As of December 31, 2018
DescriptionGross amounts of recognized assets/liabilitiesGross amount offset in the balance sheetNet amounts of assets/liabilities in balance sheetGross amounts not offset in the balance sheetNet amount
Financial InstrumentsCash Collateral Posted
SJI (includes SJG and all other consolidated subsidiaries):
Derivatives - Energy Related Assets$61,190  $—  $61,190  $(21,045) (A) $(7,252) $32,893  
Derivatives - Energy Related Liabilities$(31,390) $—  $(31,390) $21,045  (B) $—  $(10,345) 
Derivatives - Other$(7,873) $—  $(7,873) $—  $—  $(7,873) 
SJG:
Derivatives - Energy Related Assets$5,479  $—  $5,479  $(347) (A) $688  $5,820  
Derivatives - Energy Related Liabilities$(2,189) $—  $(2,189) $347  (B) $—  $(1,842) 
Derivatives - Other$(5,867) $—  $(5,867) $—  $—  $(5,867) 

As of December 31, 2016            
Description Gross amounts of recognized assets/liabilities Gross amount offset in the balance sheet Net amounts of assets/liabilities in balance sheet Gross amounts not offset in the balance sheet Net amount
    Financial Instruments Cash Collateral Posted 
SJI (includes SJG and all other consolidated subsidiaries):
Derivatives - Energy Related Assets $80,893
 $—
 $80,893
 $(38,809)(A)$(3,474) $38,610
Derivatives - Energy Related Liabilities $(64,622) $—
 $(64,622) $38,809
(B)$—
 $(25,813)
Derivatives - Other $(10,030) $—
 $(10,030) $—
 $—
 $(10,030)
SJG:            
Derivatives - Energy Related Assets $5,807
 $—
 $5,807
 $(6)(A)$(3,587) $2,214
Derivatives - Energy Related Liabilities $(1,372) $—
 $(1,372) $6
(B)$—
 $(1,366)
Derivatives - Other $(7,365) $—
 $(7,365) $—
 $—
 $(7,365)


(A) The balances at December 31, 20172019 and 20162018 were related to derivative liabilities which can be net settled against derivative assets.


(B) The balances at December 31, 20172019 and 20162018 were related to derivative assets which can be net settled against derivative liabilities.



146

The effect of derivative instruments on the consolidated statements of income for the year ended December 31 is as follows (in thousands):


Derivatives in Cash Flow Hedging Relationships under GAAP201920182017
SJI (includes SJG and all other consolidated subsidiaries):
Interest Rate Contracts:
Losses reclassified from AOCL into income (a)$(46) $(46) $(2,524) 
SJG:
Interest Rate Contracts:
Losses reclassified from AOCL into income (a)$(46) $(46) (46) 
Derivatives in Cash Flow Hedging Relationships under GAAP 2017 2016 2015 
SJI (includes SJG and all other consolidated subsidiaries):       
Interest Rate Contracts:       
Losses reclassified from AOCL into income (a) $(2,524) $(333) $(551) 
        
SJG:       
Interest Rate Contracts:       
Losses reclassified from AOCL into income (a) $(46) $(46) (46) 


(a) Included in Interest Charges


Derivatives Not Designated as Hedging Instruments under GAAP201920182017
SJI (no balances for SJG; includes all other consolidated subsidiaries):
(Losses) gains on energy-related commodity contracts (a)$(11,748) $34,509  $(13,667) 
(Losses) gains on interest rate contracts (b)(2,798) 1,337  (677) 
Total$(14,546) $35,846  $(14,344) 
Derivatives Not Designated as Hedging Instruments under GAAP 2017 2016 2015
SJI (no balances for SJG; includes all other consolidated subsidiaries):      
(Losses) gains on energy-related commodity contracts (a) $(13,667) $26,935
 $8,401
(Losses) gains on interest rate contracts (b) (677) 647
 96
       
Total $(14,344) $27,582
 $8,497


(a)  Included in Operating Revenues - Nonutility
(b)  Included in Interest Charges
Net realized gains (losses) associated with SJG’s energy-related financial commodity contracts of $0.7 million, $(3.0) million and $(9.1) million for the years ended 2017, 2016 and 2015, respectively, are not included in the above table. These contracts are part of SJG’s regulated risk management activities that serve to mitigate BGSS costs passed on to its customers. As these transactions are entered into pursuant to, and recoverable through, regulatory riders, any changes in the value of SJG’s energy-related financial commodity contracts are deferred in Regulatory Assets or Liabilities, as applicable, and there is no impact on earnings.


Certain of the Company’s derivative instruments contain provisions that require immediate payment or demand immediate and ongoing collateralization on derivative instruments in net liability positions in the event of a material adverse change in the credit standing of the Company. The aggregate fair value of all derivative instruments with credit-risk-related contingent features that are in a liability position on December 31, 2017, is $1.52019, was $0.5 million.  If the credit-risk-related contingent features underlying these agreements were triggered on December 31, 2017,2019, the Company would have been required to settle the instruments immediately or post collateral to its counterparties of approximately $0.6$0.4 million after offsetting asset positions with the same counterparties under master netting arrangements.


17.FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES:

17. FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES:

GAAP establishes a hierarchy that prioritizes fair value measurements based on the types of inputs used for the various valuation techniques.  The levels of the hierarchy are described below:


•Level 1:  Observable inputs, such as quoted prices in active markets for identical assets or liabilities.


•Level 2:  Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly; these include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.


•Level 3:  Unobservable inputs that reflect the reporting entity’s own assumptions.



Assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of financial assets and financial liabilities and their placement within the fair value hierarchy.


147

For financial assets and financial liabilities measured at fair value on a recurring basis, information about the fair value measurements for each major category is as follows (in thousands):


As of December 31, 2019TotalLevel 1Level 2Level 3
Assets    
SJI (includes SJG and all other consolidated subsidiaries):
Available-for-Sale Securities (A)$40  $40  $—  $—  
Derivatives – Energy Related Assets (B)60,135  16,931  17,841  25,363  
 $60,175  $16,971  $17,841  $25,363  
SJG:
Assets
Derivatives – Energy Related Assets (B)$16,909  $11,860  $—  $5,049  
$16,909  $11,860  $—  $5,049  
SJI (includes SJG and all other consolidated subsidiaries):
Liabilities
Derivatives – Energy Related Liabilities (B)$50,171  $34,446  $7,936  $7,789  
Derivatives – Other (C)12,660  —  12,660  —  
$62,831  $34,446  $20,596  $7,789  
SJG:
Liabilities    
Derivatives – Energy Related Liabilities (B)$14,766  $14,565  $187  $14  
Derivatives – Other (C)7,856  —  7,856  —  
 $22,622  $14,565  $8,043  $14  


148

As of December 31, 2017Total Level 1 Level 2 Level 3
Assets       
SJI (includes SJG and all other consolidated subsidiaries):       
Available-for-Sale Securities (A)$36
 $36
 $—
 $—
Derivatives – Energy Related Assets (B)48,127
 5,155
 21,869
 21,103
 $48,163
 $5,191
 $21,869
 $21,103
SJG:       
Assets       
Derivatives – Energy Related Assets (B)$7,332
 $208
 $230
 $6,894
 $7,332
 $208
 $230
 $6,894
        
SJI (includes SJG and all other consolidated subsidiaries):       
Liabilities       
Derivatives – Energy Related Liabilities (B)$52,963
 $10,687
 $24,283
 $17,993
Derivatives – Other (C)10,370
 —
 10,370
 —
 $63,333
 $10,687
 $34,653
 $17,993
        
SJG:       
Liabilities       
Derivatives – Energy Related Liabilities (B)$9,440
 $1,750
 $2,848
 $4,842
Derivatives – Other (C)7,028
 —
 7,028
 —
 $16,468
 $1,750
 $9,876
 $4,842


As of December 31, 2018TotalLevel 1Level 2Level 3
Assets    
SJI (includes SJG and all other consolidated subsidiaries):
Available-for-Sale Securities (A)$41  $41  $—  $—  
Derivatives – Energy Related Assets (B)61,190  9,955  23,429  27,806  
 $61,231  $9,996  $23,429  $27,806  
SJG:
Assets
Derivatives – Energy Related Assets (B)$5,479  $348  $126  $5,005  
$5,479  $348  $126  $5,005  
SJI (includes SJG and all other consolidated subsidiaries):
Liabilities
Derivatives – Energy Related Liabilities (B)$31,390  $7,291  $12,354  $11,745  
Derivatives – Other (C)7,873  —  7,873  —  
$39,263  $7,291  $20,227  $11,745  
SJG:
 Liabilities
    
Derivatives – Energy Related Liabilities (B)$2,189  $1,035  $1,077  $77  
Derivatives – Other (C)5,867  —  5,867  —  
 $8,056  $1,035  $6,944  $77  
As of December 31, 2016Total Level 1 Level 2 Level 3
Assets       
SJI (includes SJG and all other consolidated subsidiaries):       
Available-for-Sale Securities (A)$32
 $32
 $—
 $—
Derivatives – Energy Related Assets (B)80,893
 33,994
 11,814
 35,085
 $80,925
 $34,026
 $11,814
 $35,085
        
SJG:       
Assets       
Derivatives – Energy Related Assets (B)$5,807
 $4,767
 $—
 $1,040
 $5,807
 $4,767
 $—
 $1,040
        
SJI (includes SJG and all other consolidated subsidiaries):       
Liabilities       
Derivatives – Energy Related Liabilities (B)$64,622
 $16,502
 $22,070
 $26,050
Derivatives – Other (C)10,030
 —
 10,030
 —
 $74,652
 $16,502
 $32,100
 $26,050
        
SJG:       
 Liabilities
       
Derivatives – Energy Related Liabilities (B)$1,372
 $6
 $1,252
 $114
Derivatives – Other (C)7,365
 —
 7,365
 —
 $8,737
 $6
 $8,617
 $114


(A) Available-for-Sale Securities include securities that are traded in active markets and securities that are not traded publicly. The securities traded in active markets are valued using the quoted principal market close prices that are provided by the trustees and are categorized in Level 1 in the fair value hierarchy.  The remaining securities consist of funds that are not publicly traded.  These funds, which consist of stocks and bonds that are traded individually in active markets, are valued using quoted prices for similar assets and are categorized in Level 2 in the fair value hierarchy.


(B) Derivatives – Energy Related Assets and Liabilities are traded in both exchange-based and non-exchange-based markets. Exchange-based contracts are valued using unadjusted quoted market sources in active markets and are categorized in Level 1 in the fair value hierarchy.hierarchy - established by FASB ASC Topic 820 - “Fair Value Measurements and Disclosures.” Certain non-exchange-based contracts are valued using indicative price quotations available through brokers or over-the-counter, on-line exchanges and are categorized in Level 2. These price quotations reflect the average of the bid-ask mid-point prices and are obtained from sources that management believes provide the most liquid market. Management reviews and corroborates the price quotations with at least one additional source to ensure the prices are observable market information, which includes consideration of actual transaction volumes, market delivery points, bid-ask spreads and contract duration. Derivative instruments that are used to limit our exposure to changes in interest rates on variable-rate, long-term debt are valued using quoted prices on commonly quoted intervals, which are interpolated for periods different than the quoted intervals, as inputs to a market valuation model. Market inputs can generally be verified and model selection does not involve significant management judgment, as a result, these instruments are categorized in Level 2 in the fair value hierarchy. For non-exchange-based derivatives that trade in less liquid markets with limited pricing information, model inputs generally would include both observable and unobservable inputs. In instances where observable data is unavailable, management considers the assumptions that market participants would use in valuing the asset or liability. This includes assumptions about market risks such as liquidity, volatility and contract duration. Such instruments are categorized in Level 3 in the fair value hierarchy as the model inputs generally are not observable. Counterparty credit risk and the credit risk of SJI are incorporated and considered in the valuation of all derivative instruments as appropriate. The effect of counterparty credit risk and the credit risk of SJI on the derivative valuations is not significant.



149

Significant Unobservable Inputs - Management uses the discounted cash flow model to value Level 3 physical and financial forward contracts, which calculates mark-to-market valuations based on forward market prices, original transaction prices, volumes, risk-free rate of return and credit spreads. Inputs to the valuation model are reviewed and revised as needed, based on historical information, updated market data, market liquidity and relationships, and changes in third party pricing sources. The validity of the mark-to-market valuations and changes in mark-to-market valuationsthese values from period to period are examined and qualified against historical expectations by the risk management function. If any discrepancies are identified during this process, the mark-to-market valuations or the market pricing information is evaluated further and adjusted, if necessary.



Level 3 valuation methods for natural gas derivative contracts include utilizing another location in close proximity adjusted for certain pipeline charges to derive a basis value. The significant unobservable inputs used in the fair value measurement of certain natural gas contracts consist of forward prices developed based on industry-standard methodologies. Significant increases (decreases) in these forward prices for purchases of natural gas would result in a directionally similar impact to the fair value measurement and for sales of natural gas would result in a directionally opposite impact to the fair value measurement. Level 3 valuation methods for electric represent the value of the contract marked to the forward wholesale curve, as provided by daily exchange quotes for delivered electricity. The significant unobservable inputs used in the fair value measurement of electric contracts consist of fixed contracted electric load profiles; therefore no change in unobservable inputs would occur. Unobservable inputs are updated daily using industry-standard techniques. Management reviews and corroborates the price quotations to ensure the prices are observable which includes consideration of actual transaction volumes, market delivery points, bid-ask spreads and contract duration.


(C) Derivatives – Other are valued using quoted prices on commonly quoted intervals, which are interpolated for periods different than the quoted intervals, as inputs to a market valuation model. Market inputs can generally be verified and model selection does not involve significant management judgment.


The following table provides quantitative information regarding significant unobservable inputs in Level 3 fair value measurements (in thousands, except for ranges):



SJI (includes SJG and all other consolidated subsidiaries):
TypeFair Value at December 31, 2019Valuation TechniqueSignificant Unobservable InputRange [Weighted Average]
AssetsLiabilities
Forward Contract - Natural Gas$21,645  $4,333  Discounted Cash Flow
Forward price (per dt)

$1.57 - $7.28 [$2.38](A)
Forward Contract - Electric$3,718  $3,456  Discounted Cash FlowFixed electric load profile (on-peak)0.00% - 100.00% [55.46%](B)
Fixed electric load profile (off-peak)0.00% - 100.00% [44.54%](B)

TypeFair Value at December 31, 2018Valuation TechniqueSignificant Unobservable InputRange [Weighted Average]
AssetsLiabilities
Forward Contract - Natural Gas$20,706  $8,976  Discounted Cash Flow
Forward price (per dt)

$1.56 - $9.00 [$3.12](A)
Forward Contract - Electric$7,100  $2,769  Discounted Cash FlowFixed electric load profile (on-peak)0.00% - 100.00% [54.55%](B)
Fixed electric load profile (off-peak)0.00% - 100.00% [45.45%](B)

150
TypeFair Value at December 31, 2017Valuation TechniqueSignificant Unobservable InputRange [Weighted Average]

AssetsLiabilities



Forward Contract - Natural Gas$13,519
$15,686
Discounted Cash Flow
Forward price (per dt)

$1.79 - $12.09 [$3.01](A)
Forward Contract - Electric$7,584
$2,307
Discounted Cash FlowFixed electric load profile (on-peak)36.36% - 100.00% [53.39%](B)
Fixed electric load profile (off-peak)0.00% - 63.64% [46.61%](B)


TypeFair Value at December 31, 2016Valuation TechniqueSignificant Unobservable InputRange [Weighted Average]

AssetsLiabilities



Forward Contract - Natural Gas$23,301
$18,109
Discounted Cash Flow
Forward price (per dt)

$1.03 - $11.33 [$2.71](A)
Forward Contract - Electric$11,784
$7,941
Discounted Cash FlowFixed electric load profile (on-peak)21.43% - 100.00% [55.14%](B)
Fixed electric load profile (off-peak)0.00% - 78.57% [44.86%](B)


SJG:

TypeFair Value at December 31, 2019Valuation TechniqueSignificant Unobservable InputRange [Weighted Average]
AssetsLiabilities
Forward Contract - Natural Gas$5,049  $14  Discounted Cash Flow
Forward price (per dt)

$1.85 - $3.61 [$3.02](A)

TypeFair Value at December 31, 2017Valuation TechniqueSignificant Unobservable InputRange [Weighted Average] TypeFair Value at December 31, 2018Valuation TechniqueSignificant Unobservable InputRange [Weighted Average]
AssetsLiabilities AssetsLiabilities
Forward Contract - Natural Gas$6,894
$4,842
Discounted Cash Flow
Forward price (per dt)

$2.42 - $6.67 [$5.25](A)Forward Contract - Natural Gas$5,005  $77  Discounted Cash Flow
Forward price (per dt)

$3.13 - $6.00 [$4.53](A)

TypeFair Value at December 31, 2016Valuation TechniqueSignificant Unobservable InputRange [Weighted Average] 
 AssetsLiabilities    
Forward Contract - Natural Gas$1,040
$114
Discounted Cash Flow
Forward price (per dt)

$3.25 - $6.33 [$5.09](A)


(A) Represents the range, along with the weighted average, of forward prices for the sale and purchase of natural gas.


(B) Represents the range, along with the weighted average, of the percentage of contracted usage that is loaded during on-peak hours versus off-peak.


The changes in fair value measurements of Derivatives – Energy Related Assets and Liabilities at December 31, 20172019 and 2016,2018, using significant unobservable inputs (Level 3), are as follows (in thousands):


SJI (includes SJG and all other consolidated subsidiaries):
Year Ended December 31, 2019
Balance at January 1, 2019$16,061 
   Other changes in fair value from continuing and new contracts, net (A)19,688 
   Settlements(18,175)
Balance at December 31, 2019$17,574 
  Year Ended December 31, 2017
Balance at January 1, 2017 $9,035
   Other changes in fair value from continuing and new contracts, net 1,857
   Transfers in to/(out of) of Level 3 (A) (954)
   Settlements (6,828)
   
Balance at December 31, 2017 $3,110

Year Ended December 31, 2018
Balance at January 1, 2018$3,110 
   Other changes in fair value from continuing and new contracts, net (A)14,418 
   Settlements(1,467)
Balance at December 31, 2018$16,061 


151
  Year Ended December 31, 2016
Balance at January 1, 2016 $(632)
   Other changes in fair value from continuing and new contracts, net 5,657
   Transfers in to/(out of) of Level 3 (A) 4,116
   Settlements (106)
   
Balance at December 31, 2016 $9,035




SJG:

Year Ended December 31, 2019
Balance at January 1, 2019$4,928 
   Other changes in fair value from continuing and new contracts, net (A)5,035 
   Settlements(4,928)
Balance at December 31, 2019$5,035 

  Year Ended December 31, 2017
Balance at January 1, 2017 $926
   Other changes in fair value from continuing and new contracts, net 2,258
   Transfers in to/(out of) of Level 3 (A) (206)
   Settlements (926)
   
Balance at December 31, 2017 $2,052
Year Ended December 31, 2018
Balance at January 1, 2018$2,052 
   Other changes in fair value from continuing and new contracts, net (A)4,928 
   Settlements(2,052)
Balance at December 31, 2018$4,928 

  Year Ended December 31, 2016
Balance at January 1, 2016 $183
   Other changes in fair value from continuing and new contracts, net 926
   Settlements (183)
   
Balance at December 31, 2016 $926


(A) Transfers between different levels of the fair value hierarchy may occur based on the level of observable inputs used to value the instruments from period to period, and are assessed quarterly by management.  During the year ended December 31, 2017, $1.0 million and $0.2 million of SJI's and SJG's net derivative assets, respectively, were transferred from Level 3 to Level 2, due to increased observability of market data. During the year ended December 31, 2016, $4.1 million of SJI's net derivative assets were transferred from Level 2 to Level 3, due to decreased observability of market data.

TotalRepresents total gains for 2017(losses) included in earnings for SJI and SJG for the yearthe years ended December 31, 20172019 and 2018 that are attributable to the change in unrealized gains (losses) relating to those assets and liabilities included in Level 3 still held as of December 31, 2017, are $1.9 million.2019 and 2018, respectively. These gains (losses) are included in Operating Revenues-Nonutility on the consolidated statements of consolidated income.


18. ACCUMULATED OTHER COMPREHENSIVE LOSS (AOCL):


The following table summarizes the changes in SJI's AOCL for the yearyears ended December 31, 2019, 2018, and 2017 (in thousands):

152

Postretirement Liability Adjustment (A) Unrealized Gain (Loss) on Derivatives-Other (B) Unrealized Gain (Loss) on Available-for-Sale Securities (B) Other Comprehensive Income (Loss) of Affiliated Companies (B) TotalPostretirement Liability Adjustment (A)Unrealized Gain (Loss) on Derivatives-Other (B)Unrealized Gain (Loss) on Available-for-Sale SecuritiesOther Comprehensive Income (Loss) of Affiliated CompaniesTotal
Balance at January 1, 2017$(25,342) $(1,932) $(10) $(97) $(27,381)Balance at January 1, 2017$(25,342) $(1,932) $(10) $(97) $(27,381) 
Other comprehensive loss before reclassifications Other comprehensive loss before reclassifications(10,920) —  —  —  (10,920) 
Amounts reclassified from AOCL Amounts reclassified from AOCL—  1,536  —  —  1,536  
Net current period other comprehensive (loss) income Net current period other comprehensive (loss) income(10,920) 1,536  —  —  (9,384) 
Balance at December 31, 2017Balance at December 31, 2017(36,262) (396) (10) (97) (36,765) 
Other comprehensive income before reclassifications(10,920) —
 —
 —
 (10,920) Other comprehensive income before reclassifications10,636  —  —  —  10,636  
Amounts reclassified from AOCL (C)—
 1,536
 —
 —
 1,536
Amounts reclassified from AOCL Amounts reclassified from AOCL—  34  —  —  34  
Net current period other comprehensive income(10,920) 1,536
 —
 —
 (9,384) Net current period other comprehensive income10,636  34  —  —  10,670  
Balance at December 31, 2017$(36,262) $(396) $(10) $(97) $(36,765)
Balance at December 31, 2018Balance at December 31, 2018(25,626) (362) (10) (97) (26,095) 
Other comprehensive loss before reclassifications Other comprehensive loss before reclassifications(6,498) —  —  —  (6,498) 
Amounts reclassified from AOCL Amounts reclassified from AOCL—  35  —  —  35  
Net current period other comprehensive (loss) income Net current period other comprehensive (loss) income(6,498) 35  —  —  (6,463) 
Balance at December 31, 2019Balance at December 31, 2019$(32,124) $(327) $(10) $(97) $(32,558) 


(A) Determined using a combined average statutoryThese amounts are net of tax rate of 27%$2,539, $(3,731) and $4,106 for 2017.the years ended December 31, 2019, 2018 and 2017, respectively.
(B) Determined using a combined average statutoryThe affected line item for these reclassifications from AOCL into the statements of consolidated income is Interest Charges. These amounts are net of tax rate of 39% for 2017.
(C) See table below.


The following table provides details about reclassifications out of SJI's AOCL$(11), $(12) and $(988) for the yearyears ended December 31, 2019, 2018 and 2017, (in thousands): respectively, for which the affected line item in the statements of consolidated income is Income Taxes.


153

 Amounts Reclassified from AOCL Affected Line Item in the Statements of Consolidated Income
For the Year Ended December 31, 2017 
Unrealized Loss on Derivatives-Other - interest rate contracts designated as cash flow hedges$2,524
 Interest Charges
   Income Taxes(988) Income Taxes (a)
 $1,536
  


(a) Determined using a combined average statutory tax rate of 39%.


The following table summarizes the changes in SJG's AOCL for the years ended December 31, 2019, 2018, and 2017 (in thousands):

Postretirement Liability Adjustment (A)Unrealized Gain (Loss) on Derivatives-Other (B)Total
Balance at January 1, 2017$(14,417) $(517) $(14,934) 
   Other comprehensive loss before reclassifications(11,090) —  (11,090) 
   Amounts reclassified from AOCL—  27  27  
   Net current period other comprehensive (loss) income(11,090) 27  (11,063) 
Balance at December 31, 2017(25,507) (490) (25,997) 
   Other comprehensive income before reclassifications3,606  —  3,606  
   Amounts reclassified from AOCL—  34  34  
   Net current period other comprehensive income3,606  34  3,640  
Balance at December 31, 2018(21,901) (456) (22,357) 
   Other comprehensive loss before reclassifications(5,553) —  (5,553) 
   Amounts reclassified from AOCL—  35  35  
   Net current period other comprehensive loss(5,553) 35  (5,518) 
Balance at December 31, 2019$(27,454) $(421) $(27,875) 

(A) These amounts are net of tax of $2,241, $(1,354) and $4,164 for the years ended December 31, 2019, 2018 and 2017, respectively.
(B) The affected line item for these reclassifications from AOCL into the statements of income is Interest Charges. These amounts are net of tax of $(11), $(12) and $(19) for the years ended December 31, 2019, 2018 and 2017, respectively, for which the affected line item in the statements of income is Income Taxes.


19. REVENUES:

At contract inception, SJI and SJG assess the goods and services promised in all of its contracts with customers, and identifies a performance obligation for each promise to transfer to a customer a distinct good or service.

As applicable for each revenue stream and customer contract type, SJI and SJG follow two approaches:

•SJI and SJG have elected the Practical Expedient in ASC 606 for recognizing revenue on contracts with customers on a portfolio of performance obligations with similar characteristics, as we reasonably expect the effects of applying the guidance to the portfolio would not differ materially from applying it to individual contracts.

•SJI and SJG apply the accounting guidance for recognizing revenue on contracts with customers on a series of distinct goods and services as one performance obligation, as long as the distinct goods and services are part of a series that are substantially the same and satisfied over time, and the same method would be used to measure progress towards satisfaction of the performance obligation. All performance obligations noted below under "Revenue Recognized Over Time" apply this guidance.

154

Below is a listing of all performance obligations that arise from contracts with customers, along with details on the satisfaction of each performance obligation, the significant payment terms, and the nature of the goods and services being transferred:

Revenue Recognized Over Time:
Reportable SegmentPerformance ObligationDescription
SJG Utility Operations; ETG Gas Utility Operations; ELK Gas Utility Operations;
Wholesale Energy Operations;
Retail Gas and Other Operations
Natural Gas
SJG, ETG and ELK sell natural gas to residential, commercial and industrial customers, and price is based on regulated tariff rates which are established by the BPU or the MPSC, as applicable. There is an implied contract with a customer for the purchase, delivery, and sale of gas, and the customer is billed monthly, with payment due within 30 days. SJRG sells natural gas to commercial customers at either a fixed quantity or at variable quantities based on a customer's needs. Payment is due on the 25th of each month for the previous month's deliveries. SJE previously sold natural gas to commercial, industrial and residential customers at fixed prices throughout the life of the contract, with the customer billed monthly and payment due within 30 days (SJE sold its Retail Gas Operations in November 2018; see Note 1). For all listed segments, revenue is currently being recognized over time based upon volumes delivered (i.e., unit of output) or through the passage of time ratablyas the customer uses natural gas, which represents satisfaction of the performance obligation.
SJG Utility Operations; Wholesale Energy OperationsPipeline transportation capacitySJG and SJRG sell pipeline transportation capacity on a wholesale basis to various customers on the interstate pipeline system and transport natural gas purchased directly from producers or suppliers to their customers. These contracts to sell this capacity are at a price, quantity and time period agreed to by both parties determined on a contract by contract basis. Payment is due on the 25th of each month for the previous month's deliveries. Revenue is currently being recognized over time based upon volumes delivered (i.e., unit of output) or through the passage of time ratably coinciding with the delivery of gas and the customer obtaining control, which represents satisfaction of the performance obligation.
Wholesale Energy OperationsFuel Management ServicesSJRG currently has several fuel supply management contracts where SJRG has acquired pipeline transportation capacity that allows SJRG to match end users, many of which are merchant generators, with producers looking to find a long-term solution for their supply. Natural gas is sold to the merchant generator daily based on its needs, with payment made either weekly or biweekly depending on the contract. Revenue is currently being recognized over time based upon volumes delivered (i.e., unit of output) coinciding with the delivery of gas and the customer obtaining control, which represents satisfaction of the performance obligation.
Retail Electric OperationsElectricitySJE sells electricity to commercial, industrial and residential customers at fixed prices throughout the life of the contract, with the customer billed monthly and payment due within 30 days. Revenue is currently being recognized over time based upon volumes delivered (i.e., unit of output) or through the passage of time ratably coinciding with the delivery of electricity and the customer obtaining control, which represents satisfaction of the performance obligation.
On-Site Energy ProductionSolarPrior to the agreement to sell solar assets discussed in Note 1, Marina had several wholly-owned solar projects; as of December 31, 2019, Marina owns three projects. These projects earn revenue based on electricity generated. The customer pays monthly as electricity is being generated, with payment due within 30 days. The performance obligation is satisfied as kwh's of energy are generated (i.e., unit of output), which is when revenue is recognized.
On-Site Energy ProductionMarina Thermal FacilityMarina has a contract with a casino and resort in Atlantic City, NJ to provide cooling, heating and emergency power. There are multiple performance obligations with this contract, including electric, chilled water and hot water, and each of these are considered distinct and separately identifiable, and they are all priced separately. These performance obligations are satisfied over time ratably as they are used by the customer, who is billed monthly. Payment is due within 30 days. As discussed in Note 1, an agreement was reached to sell this facility to a third party buyer, which closed in February 2020.


155

Revenue Recognized at a Point in Time:
Reportable SegmentPerformance ObligationDescription
On-Site Energy ProductionSREC'sThe customer is billed based on a contracted amount of SREC's to be sold, with the price based on the market price of the SRECs at the time of generation. This does not represent variable consideration as the price is known and established at the time of generation and delivery to the customer. The performance obligation is satisfied at the point in time the SREC is delivered to the customer, which is when revenue is recognized. Payment terms are approximately 10 days subsequent to delivery.

For all revenue streams listed above, revenue is recognized using the Practical Expedient in ASC 606, which allows an entity to recognize revenue in the amount that is invoiced, as long as that amount corresponds to the value to the customer ("Invoiced Practical Expedient"). SJI's and SJG's contracts with customers discussed above are at prices that are known to the customer at the time of delivery, either through a fixed contractual price or market prices that are established and tied to each delivery. These amounts match the value to the customer as they are purchasing and obtaining the good or service on the same day at the agreed-upon price. This eliminates any variable consideration in transaction price, and as a result revenue is recognized at this price at the time of delivery.

SJI and SJG have determined that the above methods provide a faithful depiction of the transfer of goods or services to the customer. For all above performance obligations, SJI's and SJG's efforts are expended throughout the contract based on seasonality and customer needs. Further, for various contracts among each performance obligation, SJI and SJG may have a stand ready obligation to provide goods or services on an as needed basis to the customer.

Because the Invoiced Practical Expedient is used for recognizing revenue, SJI and SJG further adopted the Practical Expedient in ASC 606 that allows both company's to not disclose additional information regarding remaining performance obligations.

SJI revenues from contracts with customers totaled $1.55 billion and $1.51 billion for the years ended December 31, 2019 and 2018, respectively. SJG revenues from contracts with customers totaled $485.0 million and $475.5 million for the years ended December 31, 2019 and 2018, respectively. The SJG balance is a part of the SJG utility operations segment, and is before intercompany eliminations with other SJI entities. Revenues on the consolidated statements of income that are not with contracts with customers consist of (a) revenues from alternative revenue programs at the SJG, ETG and ELK utility operating segments (including CIP, AIRP, SHARP and WNC), and (b) both utility and nonutility revenue from derivative contracts at the SJG and ETG gas utility, wholesale energy, retail gas and retail electric operating segments.

SJI and SJG disaggregate revenue from contracts with customers into customer type and product line. SJI and SJG have determined that disaggregating revenue into these categories achieves the disclosure objective in ASC 606 to depict how the nature, timing and uncertainty of revenue and cash flows are affected by economic factors. Further, disaggregating revenue into these categories is consistent with information regularly reviewed by the CODM in evaluating the financial performance of SJI's operating segments. SJG only operates in the SJG Utility Operations segment. See Note 6 for further information regarding SJI's operating segments.

156

Disaggregated revenues from contracts with customers, by both customer type and product line, are disclosed below, by operating segment, for the year ended December 31, 20172019 (in thousands):


Year Ended December 31, 2019
SJG Utility OperationsETG Utility OperationsELK Utility OperationsWholesale Energy OperationsRetail Gas OperationsRetail Electric OperationsOn-site Energy ProductionAppliance Service OperationsCorporate Services and IntersegmentTotal
Customer Type:
Residential$356,646  $217,195  $3,494  $—  $—  $14,164  $—  $2,042  $—  $593,541  
Commercial & Industrial$116,959  $103,590  $4,197  $633,720  $—  $42,735  $48,748  $—  $(12,758) $937,191  
OSS & Capacity Release$8,951  $—  $—  $—  $—  $—  $—  $—  $—  $8,951  
Other$2,456  $10,242  $166  $—  $—  $—  $—  $—  $—  $12,864  
$485,012  $331,027  $7,857  $633,720  $—  $56,899  $48,748  $2,042  $(12,758) $1,552,547  
Product Line:
Gas$485,012  $331,027  $7,857  $633,720  $—  $—  $—  $—  $(5,433) $1,452,183  
Electric$—  $—  $—  $—  $—  $56,899  $—  $—  $(7,935) $48,964  
Solar$—  $—  $—  $—  $—  $—  $15,111  $—  $—  $15,111  
CHP$—  $—  $—  $—  $—  $—  $27,993  $—  $—  $27,993  
Landfills$—  $—  $—  $—  $—  $—  $5,644  $—  $—  $5,644  
Other$—  $—  $—  $—  $—  $—  $—  $2,042  $610  $2,652  
$485,012  $331,027  $7,857  $633,720  $—  $56,899  $48,748  $2,042  $(12,758) $1,552,547  

Disaggregated revenues from contracts with customers, by both customer type and product line, are disclosed below, by operating segment, for the year ended December 31, 2018 (in thousands):

Year Ended December 31, 2018
SJG Utility OperationsETG Utility OperationsELK Utility OperationsWholesale Energy OperationsRetail Gas OperationsRetail Electric OperationsOn-site Energy ProductionAppliance Service OperationsCorporate Services and IntersegmentTotal
Customer Type:
Residential$329,207  $82,763  $1,482  $—  $—  $29,762  $—  $1,957  $—  $445,171  
Commercial & Industrial132,055  42,935  1,815  652,833  75,651  94,483  72,374  —  (24,392) 1,047,754  
OSS & Capacity Release11,536  —  —  —  —  —  —  —  —  11,536  
Other2,699  2,949  65  —  —  —  —  —  —  5,713  
$475,497  $128,647  $3,362  $652,833  $75,651  $124,245  $72,374  $1,957  $(24,392) $1,510,174  
Product Line:
Gas$475,497  $128,647  $3,362  $652,833  $75,651  $—  $—  $—  $(10,181) $1,325,809  
Electric—  —  —  —  —  124,245  —  —  (7,904) 116,341  
Solar—  —  —  —  —  —  35,444  —  (6,307) 29,137  
CHP—  —  —  —  —  —  30,473  —  —  30,473  
Landfills—  —  —  —  —  —  6,457  —  —  6,457  
Other—  —  —  —  —  —  —  1,957  —  1,957  
$475,497  $128,647  $3,362  $652,833  $75,651  $124,245  $72,374  $1,957  $(24,392) $1,510,174  


157
 Postretirement Liability Adjustment (A) Unrealized Gain (Loss) on Derivatives-Other (B) Total
Balance at January 1, 2017(14,417) (517) $(14,934)
   Other comprehensive loss before
   reclassifications
(11,090) —
 (11,090)
   Amounts reclassified from AOCL (C)—
 27
 27
Net current period other comprehensive loss(11,090) 27
 (11,063)
Balance at December 31, 2017$(25,507) $(490) $(25,997)
      


(A) Determined using a combined average statutory tax rate of 27% for 2017.
(B) Determined using a combined average statutory tax rate of 39% for 2017.
(C) See table below.

The following table provides detailsinformation about reclassifications outSJI's and SJG's receivables and unbilled revenue from contracts with customers (in thousands):
Accounts Receivable (1)Unbilled Revenue (2)
SJI (including SJG and all other consolidated subsidiaries):
Beginning balance as of 1/1/2019$337,502  $79,538  
Ending balance as of 12/31/2019253,661  84,821  
Increase (Decrease)$(83,841) $5,283  
Beginning balance as of 1/1/2018$202,379  $73,377  
Ending balance as of 12/31/2018337,502  79,538  
Increase (Decrease)$135,123  $6,161  
SJG:
Beginning balance as of 1/1/2019$101,572  $43,271  
Ending balance as of 12/31/201984,940  45,016  
Increase (Decrease)$(16,632) $1,745  
Beginning balance as of 1/1/2018$78,571  $54,980  
Ending balance as of 12/31/2018101,572  43,271  
Increase (Decrease)$23,001  $(11,709) 

(1) Included in Accounts Receivable in the consolidated balance sheets. A receivable is SJI's and SJG's right to consideration that is unconditional, as only the passage of time is required before payment is expected from the customer. All of SJI's and SJG's AOCLAccounts Receivable arise from contracts with customers. The decrease from the prior year is driven by warmer weather in December 2019 causing lower sales, along with, for SJI, the accounts receivable for MTF/ACB and ELK being reclassified to held for sale (see Note 1).

(2) Included in Unbilled Revenues in the consolidated balance sheets. All unbilled revenue for SJI and SJG arises from contracts with customers. Unbilled revenue relates to SJI's and SJG's right to receive payment for commodity delivered but not yet billed. This represents contract assets that arise from contracts with customers, which is defined in ASC 606 as the right to payment in exchange for goods already transferred to a customer, excluding any amounts presented as a receivable. The unbilled revenue is transferred to accounts receivable when billing occurs and the rights to collection become unconditional. The change in unbilled revenues is primarily due to changes in usage between periods.


20. BUSINESS COMBINATIONS

ETG and ELK Acquisition

On July 1, 2018, the Company completed the Acquisition of ETG and ELK. The Company completed the Acquisition for total consideration of $1.72 billion in cash, inclusive of $24.7 million of certain net working capital adjustments. Of the total, $1.71 billion relates to the acquisition of ETG, while $10.9 million relates to the acquisition of the ELK. The Acquisition supports the Company’s strategy of earnings growth derived from high-quality, regulated utilities. Further, the Acquisition expands the Company’s customer base in the natural gas industry, which drives efficiencies by providing a greater operating scale.

Purchase price allocations

The Acquisition was accounted for as a business combination using the acquisition method of accounting in accordance with GAAP, which includes GAAP for regulated operations. Under the acquisition method of accounting, the total estimated purchase price of an acquisition is allocated to the net assets based on their estimated fair values. ETG's and ELK's regulated natural gas distribution operations are subject to rate-setting authorities of the BPU and the MPSC, respectively, which includes provisions in place that provide revenues to recover costs of service, including a carrying charge on most net assets and liabilities. Given the regulatory environment under which ETG and ELK operate, the historical book value of the assets acquired and liabilities assumed approximate fair value.

158

The purchase price for the Acquisition has been allocated to the assets acquired and liabilities assumed as of the acquisition date and is as follows:

(in thousands)ETG and ELK
Property, Plant and Equipment$1,202,435 
Accounts Receivable45,875 
Provision for Uncollectibles(6,579)
Natural Gas in Storage12,204 
Materials and Supplies345 
Other Prepayments and Current Assets200 
Deferred Income Taxes39,470 
Regulatory Assets136,212 
Goodwill700,286 
     Total assets acquired2,130,448 
Accounts Payable13,089 
Other Current Liabilities9,185 
Environmental Remediation Costs - Current7,100 
Pension and Other Postretirement Benefits3,213 
Environmental Remediation Costs - Non Current66,165 
Regulatory Liabilities192,811 
Asset Retirement Obligation113,093 
Other1,107 
     Total liabilities assumed405,763 
          Total net assets acquired$1,724,685 

Goodwill of $700.3 million arising from the Acquisition includes the potential synergies between ETG, ELK and the Company. The goodwill, of which $599.7 million is expected to be deductible for income tax purposes, was principally assigned to the ETG Utility Operations segment. The goodwill of ELK has since been reclassified to Assets Held for Sale on the consolidated balance sheets as a result of the agreement to sell ELK (see Notes 1 and 21).

Conditions of approval

The Acquisition was subject to regulatory approval from the BPU and the MPSC. Approvals were obtained from both commissions, subject to various conditions. As a requirement for approval of the acquisition of ETG, the BPU mandated that the Company pay $15.0 million to existing ETG customers in the form of a one-time credit. As a requirement for approval of the acquisition of ELK, the MPSC mandated that the Company pay $0.3 million to existing ELK customers in the form of a one-time payout. These payments were made to ETG and ELK customers in 2018. Other key conditions of approval related to the Acquisition include but are not limited to ETG filing a base rate case no later than June 2020, which ETG accomplished with its April 2019 base rate case filing (see Note 10).

Consistent with Acquisition approval, SJI was required to develop a plan, in concert with the BPU, to address the remaining aging infrastructure at ETG. In June 2019, the BPU issued an Order approving a $300.0 million IIP effective July 1, 2019. The Order authorized the recovery of costs associated with ETG's investments of approximately $300.0 million between 2019-2024 to replace its cast-iron and bare steel vintage main and related services. The Order provides for annual recovery of ETG's investments through a separate rate mechanism.

Financial information of the acquirees

The amount of ETG and ELK revenues included in the Company's consolidated statements of income for the years ended December 31, 2019 and 2018 was $333.1 million and $128.9 million, respectively. The amount of ETG and ELK earnings included in the Company's consolidated statements of income for the years ended December 31, 2019 and 2018 was $34.8 million and a net loss of $5.2 million, respectively. The net loss in 2018 was due to the seasonal nature of the business for the period owned and $15.3 million in payments to customers discussed under "Conditions to approval" above.

159

During the year ended December 31, 2018, the Company recorded $49.4 million of acquisition-related expenses directly related to the Acquisition, inclusive of the $15.3 million in payments to customers. ETG and ELK's net loss of $5.2 million included these customer payments, but the remaining portion of the acquisition-related expenses did not impact ETG and ELK's operating loss during 2018.

Supplemental disclosure of pro forma information

The following supplemental unaudited pro forma information presents the combined results of SJI, ETG, and ELK as if the Acquisition occurred on January 1, 2017. This supplemental unaudited pro forma information has been prepared for comparative purposes and does not purport to be indicative of what would have occurred had the Acquisition occurred on January 1, 2017, nor is it indicative of any future results.

The pro forma results include adjustments for the financing impact of the Acquisition, along with the tax-related impacts. Other material non-recurring adjustments are reflected in the pro forma and described below:
(In thousands, except per share data)Year Ended December 31,
201920182017
Revenues$1,628,626  $1,829,823  $1,555,124  
Net (loss) income$76,917  $74,770  $(9,824) 
Earnings (loss) per share$0.84  $0.89  $(0.11) 

The supplemental unaudited pro forma net income for the year ended December 31, 2018 was adjusted to exclude $34.1 million of acquisition-related costs, which includes one-time regulatory approval costs, but excludes financing adjustments and recurring charges.

The supplemental unaudited pro forma net income for the year ended December 31, 2017 (in thousands):was adjusted to include $34.1 million of acquisition-related costs, which excludes financing adjustments and recurring charges.


AEP Acquisition

On August 31, 2019, SJI, through its wholly-owned subsidiary SJEI, completed its acquisition of AEP for $4.0 million in total consideration, inclusive of certain working capital and other closing adjustments.

The acquisition of AEP was accounted for as a business combination using the acquisition method of accounting in accordance with GAAP. Under the acquisition method of accounting, the total estimated purchase price of an acquisition is allocated to the net assets based on their estimated fair values. AEP does not have any regulated operations.

The Company has not finalized its valuation of certain assets and liabilities in connection with the acquisition of AEP. As such, the estimated measurements recorded to date are subject to change. Any changes will be recorded as adjustments to the fair value of those assets and liabilities and residual amounts will be allocated to goodwill. The final valuation adjustments may also require adjustment to the consolidated statements of operations and cash flows. The final determination of these fair values will be completed as soon as possible but no later than one year from the acquisition date.

The purchase price for the AEP acquisition has been allocated, on a preliminary basis, to the assets acquired and liabilities assumed as of the acquisition date and is as follows:


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Components of AOCLAmounts Reclassified from AOCL Affected Line Item in the Statements of Income
For the Year Ended December 31, 2017 
Unrealized Loss on Derivatives-Other - Interest Rate Contracts designated as cash flow hedges$46
 Interest Charges
  Income Taxes(19) Income Taxes (a)
 $27
  

(a) Determined using a combined average statutory tax rate of 39%.


19.(in thousands)SUBSEQUENT EVENTS:AEP
Cash$43 
Accounts Receivable116 
Other Prepayments and Current Assets53 
Goodwill1,843 
Other Noncurrent Assets (A)2,400 
     Total assets acquired4,455 
Accounts Payable11 
Other Current Liabilities449 
     Total liabilities assumed460 
          Total net assets acquired$3,995 


(A) Balance is comprised of identifiable intangible assets, see Note 21.

All assets and financial results of AEP are included in the Corporate & Services segment. The amount of AEP revenues and net income included in the Company's consolidated statement of income for the year ended December 31, 2019 is approximately $0.6 million and $0.1 million, respectively.

We did not include supplemental pro forma disclosures for the AEP acquisition due to the overall immateriality of the transaction.

21. GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS:

GOODWILL - Goodwill represents future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. Goodwill is initially measured at cost, being the excess of the aggregate of the consideration paid or transferred over the fair value of identifiable net assets acquired. Goodwill is not amortized, but instead is subject to impairment testing on an annual basis, and between annual tests whenever events or changes in circumstances indicate that the fair value of a reporting unit may be below its carrying amount.

The Company performs its annual goodwill impairment test in the fourth quarter of each fiscal year beginning with a qualitative assessment at the reporting unit level. The reporting unit level is identified by assessing whether the components of our operating segments constitute businesses for which discrete financial information is available, whether segment management regularly reviews the operating results of those components and whether the economic and regulatory characteristics are similar. Factors utilized in the qualitative analysis performed on goodwill in our reporting units include, among other things, macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, company specific operating results and other relevant entity-specific events affecting individual reporting units.

If sufficient qualitative factors exist, goodwill impairment is determined using a two-step process. Step one identifies potential impairment by comparing the fair value of a reporting unit to the book value, including goodwill. The Company estimates the fair value of a reporting unit using a discounted cash flow analysis.  Management also considers other methods, which includes a market multiples analysis. Determining the fair value of a reporting unit requires judgment and the use of significant estimates and assumptions. Such estimates and assumptions include, but are not limited to, forecasts of future operating results, discount and growth rates, capital expenditures, tax rates, and projected terminal values. Changes in estimates or the application of alternative assumptions could produce significantly different results. If the fair value exceeds book value, goodwill of the reporting unit is not considered impaired. If the book value exceeds fair value, step two is undertaken, which compares the implied fair value of the reporting unit's goodwill to the book value of the reporting unit goodwill. If the book value of goodwill exceeds the implied fair value, an impairment charge is recognized for the excess.

Total goodwill of $702.1 million and $734.6 million was recorded on the consolidated balance sheets as of December 31, 2019 and 2018, respectively. As of December 31, 2019, $700.2 million was included in the ETG Utility Operations segment and $1.9 million was included in the Corporate & Services segment. In addition, goodwill values reclassified to Assets Held for Sale included $0.1 million in the ELK Utility Operations segment (see Note 1).

As of December 31, 2018, $730.9 million was included in the ETG Utility Operations segment, $3.6 million was included in the On-Site Energy Production segment, and $0.1 million was included in the ELK Utility Operations segment.

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Table of Contents
SJG does 0t have any goodwill.

In January 2018, SJI issued the following MTN's: (a) $25.0 million aggregate principal amount of 3.32% Senior Notes, Series 2017A-2, due January 2025 and (b) $25.0 million aggregate principal amount of 3.56% Senior Notes, Series 2017B-2, due January 2028.

In January 2018, the BPU issued an Order directing the New Jersey utilities, including SJG, to submit filings by March 2, 2018, proposing the prospective change in rates2019, as a result of Tax Reform, the methodagreement to returnsell MTF & ACB (see Note 1), the Company recorded a $3.6 million impairment charge on goodwill due to customers the rate difference from January 1,purchase price being less than the total carrying value. This impairment charge was taken at the On-Site Energy Production segment and recorded to Impairment Charges on the consolidated statements of income.

The Company performed the remainder of its 2019 and 2018 throughannual goodwill impairment assessments and concluded that the effective datefair value of all other reporting units containing goodwill exceeded their respective carrying values. The Company concluded based on the results of the rate change,annual testing performed that there were 0 additional goodwill impairments identified for the years ended December 31, 2019 and 2018.

In connection with the method2017 annual goodwill impairment assessment, the Company performed a qualitative assessment over its business units and noted that as a result of the continuing cash flow losses incurred at the LFGTE's business unit, the two-step impairment test was necessary during 2017. Based on the results of the goodwill impairment test, the Company determined that the carrying value of the LFGTE's reporting unit was higher than the fair value, and accordingly, the Company recognized a pre-tax impairment charge of $1.3 million during the year ended December 31, 2017, recorded in Impairment Charges on the consolidated statements of income and included in the Company's On-Site Energy Production segment.

The following table summarizes the changes in goodwill for the years ended December 31, 2019 and 2018, respectively (in thousands):

20192018
Beginning Balance, January 1$734,607  $3,578  
Goodwill from AEP Acquisition1,843  —  
Goodwill from ETG and ELK Acquisition—  756,247  
ETG and ELK Acquisition-related Working Capital Settlement(15,600) —  
ETG and ELK Fair Value Adjustments During Measurement Period(15,143) (25,218) 
Impairment Charge(3,637) —  
Ending Balance, December 31$702,070  $734,607  

IDENTIFIABLE INTANGIBLE ASSETS - The primary identifiable intangible assets of the Company are customer relationships, including those obtained in the acquisition of AEP (see Note 20), along with the AMA (see Note 1). The Company determines the useful lives of identifiable intangible assets after considering the specific facts and circumstances related to each intangible asset. Considerations may include the contractual term of any agreement related to the asset, the historical performance of the asset, the Company's long-term strategy for using the asset, any laws or other local regulations which could impact the useful life of the asset, and other economic factors, including competition and specific market conditions. Intangible assets that are deemed to have definite lives (finite-lived intangible assets) are amortized, primarily on a straight-line basis, over their useful lives, generally ranging from 2 to 20 years.

In 2019, as a result of the agreement to sell MTF & ACB (see Note 1), the Company recorded a $4.8 million impairment charge on identifiable intangible assets due to the purchase price being less than the total carrying value. This impairment charge was taken at the On-Site Energy Production segment and recorded to Impairment Charges on the consolidated statements of income. NaN impairment charges were taken on identifiable intangible assets in 2018. In 2017, SJI recorded a $2.2 million impairment charge specific to the LFGTE intangible assets related to customer relationships, which was primarily driven by whichrevised assumptions for decreased electric production and increased operating expenses, and was recorded in Impairment Charges on the excess deferred taxes will be returnedconsolidated statements of income, and in the Company's On-Site Energy Production segment.



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SJI's identifiable intangible assets were as follows (in thousands):
As of December 31, 2019
Gross CostAccumulated AmortizationIdentifiable Intangible Assets, Net
Identifiable intangible assets subject to amortization:
     Customer Relationships$2,400  $(53) $2,347  
     AMA (See Note 1)19,200  (7,680) 11,520  
Total$21,600  $(7,733) $13,867  

As of December 31, 2018
Gross CostAccumulated AmortizationIdentifiable Intangible Assets, Net
Identifiable intangible assets subject to amortization:
     Customer Relationships$14,400  $(2,880) $11,520  
     AMA (See Note 1)19,200  (2,560) 16,640  
Total$33,600  $(5,440) $28,160  

The net identifiable intangible asset balances shown in the table above are included in Other Noncurrent Assets on the consolidated balance sheets as of December 31, 2019 and 2018, respectively. The decrease in the net identifiable intangible asset balance from the prior year is due to customers.the impairment charges discussed above, customer relationships being reclassified to Assets Held for Sale as part of the agreement to sell MTF/ACB (see Note 1), and amortization recorded in 2019, partially offset by customer relationships recorded in connection with the AEP acquisition during the third quarter of 2019 (see Note 20).



Total SJI amortization expense related to identifiable intangible assets was $6.1 million, $3.5 million, and $1.0 million for the years ended December 31, 2019, 2018, and 2017, respectively.



As of December 31, 2019, SJI's estimated amortization expense related to identifiable intangible assets for each of the five succeeding fiscal years is as follows (in thousands):



Year ended December 31,SJI
2020$5,280  
20215,280  
20221,440  
2023160  
2024160  

The decreases in estimated amortization expense in the table above are due to the AMA ceasing in March 2022 (see Note 1).

SJG does 0t have any identifiable intangible assets.

22. SUBSEQUENT EVENTS:

In January 2020, ETG received $6.8 million of an insurance settlement with a third party (see Note 11).

On February 18, 2020, the Company closed on the agreement to sell MTF & ACB (see Note 1) for a final sales price of $97.0 million (see Note 1).

On February 18, 2020, PennEast filed a Petition for a Writ of Certiorari with the Supreme Court of the United States to review the September 10, 2019 Third Circuit decision (see Note 3).

On February 20, 2020, FERC granted PennEast’s request for a two-year extension to complete the construction of the pipeline (see Note 3).

163

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  
To the stockholders and the Board of Directors of South Jersey Industries, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of South Jersey Industries, Inc. and subsidiaries (the "Company") as of December 31, 20172019 and 2016,2018, the related consolidated statements of income, comprehensive income, cash flows and changes in equity and comprehensive income, for each of the three years in the period ended December 31, 2017,2019, and the related notes and the schedules listed in the Index at Item 15(a)23 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20172019 and 2016,2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017,2019, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2017,2019, based on criteria established in Internal Control -— Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 23, 2018,27, 2020, expressed an unqualified opinion on the Company's internal control over financial reporting.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.



Critical Audit Matters


The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.


Regulation - Impact of Rate-Regulation on the Financial Statements — Refer to Notes 1, 10 and 11 to the financial statements

Critical Audit Matter Description

South Jersey Gas Company (“SJG”) and Elizabethtown Gas Company (“ETG”) are regulated natural gas utilities which distribute natural gas in southern and northern New Jersey. SJG and ETG are subject to regulation by the New Jersey Board of Public Utilities (the “BPU”). Management has determined it meets the requirements under accounting principles generally accepted in the United States of America to prepare its financial statements in accordance with ASC 980, Regulated Operations. Accounting for the economics of rate-regulation impacts multiple financial statement line items, including utility property, plant, and equipment; regulatory assets and liabilities; operating revenues; operations and maintenance expenses; and depreciation expense, and effects multiple disclosures in the Company’s financial statements.


164

The BPU approves the rates that are charged to rate-regulated customers for services provided and the terms of service under which SJG and ETG operate. The rates and established terms of service are designed to enable SJG and ETG to recover costs of service and obtain a fair and reasonable return on capital invested. The impact of the ratemaking process and decisions authorized by the BPU allow SJG and ETG to capitalize and defer certain costs that are expected to be recovered from its customers as regulatory assets, and to recognize certain obligations representing amounts that are probable future expenditures as regulatory liabilities in accordance with accounting guidance applicable to regulated operations. Decisions to be made by the BPU in the future will impact the accounting for regulated operations, including decisions about the amount of allowable costs and return on invested capital included in rates and any refunds that may be required.

While SJG and ETG have indicated they expect to recover costs from customers through regulated rates, there is a risk that the BPU will not approve full recovery of the costs of providing utility service or recovery of all amounts invested in the utility business and a reasonable return on that investment. As a result, we identified the impact of rate-regulation as a critical audit matter due to the high degree of subjectivity involved in assessing the impact of current and future regulatory orders on events that have occurred as of December 31, 2019, and the judgments made by management to support its assertions about impacted account balances and disclosures. Management judgments included assessing the likelihood of recovery in future rates of incurred costs or refunds to customers or future reduction in rates. Given that management’s accounting judgements are based on assumptions about the outcome of future decisions by the BPU, auditing these rate-impacted account balances and disclosures, and the related judgments, requires specialized knowledge of accounting for rate regulation and the rate setting process due its inherent complexities.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the uncertainty of future decisions by the BPU included the following, among others:

•We tested the effectiveness of management’s controls over the evaluation of the likelihood of (1) the recovery in future rates of costs incurred as property, plant, and equipment and deferred as regulatory assets, and (2) a refund or a future reduction in rates that should be reported as regulatory liabilities. We also tested the effectiveness of management’s controls over the initial recognition of amounts as property, plant, and equipment; regulatory assets or liabilities; and the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates or of a future reduction in rates.

•We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments.

•We read relevant regulatory orders issued by the BPU for SJG and ETG and other public utilities in New Jersey; regulatory statutes, interpretations, procedural memorandums, and filings made by interveners; and other publicly available information to assess the likelihood of recovery in future rates or of a future reduction in rates based on precedents of the BPU’s treatment of similar costs under similar circumstances. We also obtained and read the November 13, 2019 BPU order adopting the stipulation of settlement for ETG’s April 2019 base rate case as well as the publicly available filings made by ETG and its related attachments. We evaluated the external information and compared that to management’s assertions regarding the probability of recovery or refund of regulatory asset and liability balances.

•We obtained from management the regulatory orders and filings that support management’s assertions regarding the likelihood of recovery for regulatory assets or the likelihood of refund or future reduction in rates for regulatory liabilities to assess management’s assertion that amounts are probable of recovery or probably of a future refund or reduction in rates.


165

Investment in Affiliates – PennEast — Refer to Note 3 to the financial statements.

Critical Audit Matter Description

The Company, through its subsidiary Midstream, is a 20 percent investor in PennEast Pipeline Company, LLC (“PennEast”), a partnership whose purpose is to construct and operate a natural gas pipeline that will extend from Northeastern Pennsylvania into New Jersey. In the third quarter of 2019, PennEast received adverse court rulings and is pursuing legal remedies as well as pursuing changes to the development plan for the pipeline, including asking the Federal Energy Regulatory Commission ("FERC") for an extension for construction of the pipeline and filing with the FERC plans for a phased approach to construction. As a result of these developments, the Company evaluated its investment for impairment by comparing the estimated fair value of the investment to the carrying value and determined that an impairment charge was not necessary. The Company estimated the fair value of its investment using probability-weighted scenarios of discounted future cash flows. Management made significant estimates and assumptions related to development options and legal outcomes, construction costs, timing of in-service dates, revenues (including forecasted volumes and rates), and discount rates. The discounted cash flow scenarios contemplate the impact of key assumptions of potential future court decisions and potential future management decisions and requires management to make significant estimates regarding the likelihood of various scenarios and assumptions.

We identified the evaluation of impairment for the investment in PennEast as a critical audit matter because of the significant estimates and assumptions management makes to estimate the fair value of its investment. This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists, when performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to the probabilities associated with the development options and legal outcomes, the forecasts of revenues and construction costs, and the selection of the discount rate used in the probability-weighted scenarios of discounted future cash flows.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the probabilities associated with the development options and legal outcomes, the forecasts of future revenues and construction costs, and the selection of the discount rate used by management in the probability-weighted scenarios of discounted future cash flows used in the evaluation of impairment for the PennEast investment, included the following, among others:

•We tested the effectiveness of controls over management’s evaluation of the PennEast investment for impairment including those related to the probabilities associated with the development options and legal outcomes, the forecasting of future revenues and construction costs, and the selection of the discount rate.

•We evaluated the reasonableness of the probabilities related to the development options and legal outcomes by making inquiries with legal counsel regarding the likely outcomes of future court rulings, and with operations and executive management regarding the viability of development options.We compared the results of these legal and management inquiries to internal communications to management, the Board of Directors, and PennEast member partners to search for contradictory information.We also read external information included in press releases, earnings releases, regulatory filings, and other PennEast member partner communications to search for contradictory information.

•We evaluated the reasonableness of the forecasts of revenues (including forecasted volumes and rates) and construction costs by:
◦Comparing management’s volume assumptions to contractual agreements where applicable and information regarding demand and capacity volumes in the region for the remaining volumes.
◦Comparing management’s rate assumptions to contractual agreements.
◦Evaluating the reasonableness of management’s construction cost assumptions by comparing other similar pipeline project costs to the construction costs assumed by management, in addition to agreeing to source information used by management to evaluate the construction cost estimate.
◦Reading internal communications to management and the Board of Directors and external information included in press releases, earnings releases and other PennEast member communications to search for contradictory information.

166

•We evaluated the selection of the discount rate with the assistance of our fair value specialists, by:
◦Testing the source information underlying the determination of the discount rate and the mathematical accuracy of the calculation
◦Developing a range of independent estimates and comparing those to the discount rate selected by management.




/s/ Deloitte & Touche LLP
Philadelphia, Pennsylvania
February 26, 201827, 2020


We have served as the Company's auditor since 1948.



167

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholder and the Board of Directors of South Jersey Gas Company
Opinion on the Financial Statements
We have audited the accompanying balance sheets of South Jersey Gas Company (the "Company") as of December 31, 20172019 and 2016,2018, the related statements of income, comprehensive income, cash flows and changes in common equity and comprehensive income, for each of the three years in the period ended December 31, 2017,2019, and the related notes and the schedule listed in the Index at Item 15(a)23 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20172019 and 2016,2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017,2019, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.








/s/ Deloitte & Touche LLP
Philadelphia, Pennsylvania
February 26, 201827, 2020


We have served as the Company's auditor since 1948.





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Quarterly Financial Data (Unaudited)
(Summarized quarterly results of SJI's and SJG's operations, in thousands except for per share amounts)
 2019 Quarter Ended2018 Quarter Ended
SJI (includes SJG and all other consolidated subsidiaries):March 31June 30Sept. 30Dec. 31March 31June 30Sept. 30Dec. 31
Operating Revenues$637,298  $266,934  $261,203  $463,191  $521,945  $227,330  $302,480  $589,583  
Expenses:        
Cost of Sales - (Excluding depreciation)402,387  165,341  190,366  273,873  283,068  145,796  233,112  393,432  
Operations, Impairment Charges, Net Gains on Sale of Assets, Depreciation and Maintenance Including Interest Charges124,794  118,444  116,056  138,641  92,540  208,384  131,899  133,121  
Income Taxes24,949  (4,646) (10,925) 11,683  36,415  (31,972) (16,649) 12,767  
Energy and Other Taxes4,217  2,717  2,663  2,399  2,439  1,243  2,595  3,260  
Total Expenses556,347  281,856  298,160  426,596  414,462  323,451  350,957  542,580  
Other Income and Expense & Equity in Earnings of Affiliated Companies4,748  1,618  2,211  2,945  3,823  2,328  2,835  (971) 
Income (Loss) from Continuing Operations85,699  (13,304) (34,746) 39,540  111,306  (93,793) (45,642) 46,032  
Loss from Discontinued Operations  -  (Net of tax benefit)(62) (95) (59) (56) (66) (26) (43) (105) 
Net Income (Loss)$85,637  $(13,399) $(34,805) $39,484  $111,240  $(93,819) $(45,685) $45,927  
Basic Earnings (Loss) Per Common Share:        
Continuing Operations$0.94  $(0.14) $(0.38) $0.43  $1.40  $(1.12) $(0.53) $0.54  
Discontinued Operations—  —  —  —  —  —  —  —  
Basic Earnings (Loss) Per Common Share$0.94  $(0.14) $(0.38) $0.43  $1.40  $(1.12) $(0.53) $0.54  
Average Shares of Common Stock Outstanding - Basic91,332  92,389  92,392  92,130  79,595  84,080  85,506  85,506  
Diluted Earnings (Loss) Per Common Share:        
Continuing Operations$0.94  $(0.14) $(0.38) $0.43  $1.40  $(1.12) $(0.53) $0.53  
Discontinued Operations—  —  —  —  —  —  —  —  
Diluted Earnings (Loss) Per Common Share$0.94  $(0.14) $(0.38) $0.43  $1.40  $(1.12) $(0.53) $0.53  
Average Shares of Common Stock Outstanding - Diluted91,432  92,389  92,392  92,253  79,724  84,080  85,506  86,389  
2019 Quarter Ended2018 Quarter Ended
SJG:March 31  June 30  Sept. 30  Dec. 31  March 31  June 30  Sept. 30  Dec. 31  
Operating Revenues$272,198  $62,268  $62,039  $172,721  $234,459  $76,801  $56,371  $180,369  
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  2017 Quarter Ended 2016 Quarter Ended
SJI (includes SJG and all other consolidated subsidiaries): March 31 June 30 Sept. 30 Dec. 31 March 31 June 30 Sept. 30 Dec. 31
Operating Revenues $425,829
 $244,374
 $227,127
 $345,738
 $333,035
 $154,402
 $219,082
 $329,981
Expenses:  
  
  
  
  
  
  
  
Cost of Sales - (Excluding depreciation) 287,143
 179,684
 168,815
 210,585
 152,975
 98,340
 142,988
 186,684
Operations, Impairment Charges and Maintenance Including Fixed Charges 85,675
 78,681
 122,617
 152,990
 73,042
 71,034
 69,410
 77,858
Income Taxes 21,870
 (5,544) (24,765) (16,498) 39,267
 (7,189) 2,807
 19,266
Energy and Other Taxes 2,071
 1,551
 1,517
 1,348
 1,925
 1,243
 1,449
 1,725
Total Expenses 396,759
 254,372
 268,184
 348,425
 267,209
 163,428
 216,654
 285,533
Other Income and Expense 8,677
 2,386
 3,509
 6,696
 2,361
 4,228
 7,236
 1,560
Income (Loss) from Continuing Operations 37,747
 (7,612) (37,548) 4,009
 68,187
 (4,798) 9,664
 46,008
Loss from Discontinued Operations  -  (Net of tax benefit) (30) (47) (45) 36
 (118) (29) (29) (75)
Net Income (Loss) $37,717
 $(7,659) $(37,593) $4,045
 $68,069
 $(4,827) $9,635
 $45,933
   
  
  
  
  
  
  
  
Basic Earnings Per Common Share:  
  
  
  
  
  
  
  
Continuing Operations $0.47
 $(0.10) $(0.47) $0.05
 $0.96
 $(0.06) $0.12
 $0.58
Discontinued Operations —
 —
 —
 —
 —
 —
 —
 —
Basic Earnings Per Common Share $0.47
 $(0.10) $(0.47) $0.05
 $0.96
 $(0.06) $0.12
 $0.58
Average Shares of Common Stock Outstanding - Basic 79,519
 79,534
 79,539
 79,549
 71,127
 75,298
 79,478
 79,478
   
  
  
  
  
  
  
  
Diluted Earnings Per Common Share:  
  
  
  
  
  
  
  
Continuing Operations $0.47
 $(0.10) $(0.47) $0.05
 $0.95
 $(0.06) $0.12
 $0.58
Discontinued Operations —
 —
 —
 —
 —
 —
 —
 —
Diluted Earnings Per Common Share $0.47
 $(0.10) $(0.47) $0.05
 $0.95
 $(0.06) $0.12
 $0.58
Average Shares of Common Stock Outstanding - Diluted 79,641
 79,670
 79,539
 79,705
 71,416
 75,298
 79,635
 79,643
                 
  2017 Quarter Ended 2016 Quarter Ended
SJG: March 31 June 30 Sept. 30 Dec. 31 March 31 June 30 Sept. 30 Dec. 31
Operating Revenues $196,814
 $83,251
 $66,755
 $170,434
 $187,766
 $68,762
 $62,025
 $142,502
Expenses:                

Expenses:Expenses:    
Cost of Sales (excluding depreciation) 72,424
 33,644
 29,499
 68,865
 69,303
 19,997
 26,395
 58,695
Cost of Sales (excluding depreciation)118,880  2,654  19,268  70,542  89,808  19,379  16,079  84,383  
Operations and Maintenance Including Fixed Charges 48,327
 46,656
 47,456
 54,872
 46,450
 42,826
 41,303
 47,886
Operations, Depreciation and Maintenance Including Fixed ChargesOperations, Depreciation and Maintenance Including Fixed Charges60,832  56,141  57,771  62,412  57,323  55,480  53,239  63,386  
Income Taxes 29,911
 1,431
 (3,688) 18,046
 27,404
 1,415
 (2,007) 12,554
Income Taxes23,697  671  (3,747) 12,201  21,836  482  (2,818) 6,913  
Energy and Other Taxes 1,295
 872
 865
 697
 1,027
 560
 838
 1,195
Energy and Other Taxes1,989  1,154  1,159  584  1,255  498  988  1,505  
Total Expenses 151,957
 82,603
 74,132
 142,480
 144,184
 64,798
 66,529
 120,330
Total Expenses205,398  60,620  74,451  145,739  170,222  75,839  67,488  156,187  
Other Income and Expense 1,621
 1,618
 1,606
 1,630
 836
 1,079
 1,189
 727
Other Income and Expense (See Note 1)Other Income and Expense (See Note 1)1,931  328  808  1,309  2,510  607  2,141  (573) 
Net Income (Loss) $46,478
 $2,266
 $(5,771) $29,584
 $44,418
 $5,043
 $(3,315) $22,899
Net Income (Loss)$68,731  $1,976  $(11,604) $28,291  $66,747  $1,569  $(8,976) $23,609  
The sum of the quarters for basic and diluted earnings per common share for 20162019 and 2018 does not equal the year's total due to the impact of the equity offering on the average shares of common stock outstanding (see Note 6). The sum of the quarters for basic and diluted earnings per common share may not equal the year's total due to, along with rounding.
NOTE:Because of the seasonal nature of the business and the volatility from energy-related derivatives, statements for the 3-month periods are not indicative of the results for a full year.



Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure


None


Item 9A. Controls and Procedures


Evaluation of Disclosure Controls and Procedures


The management of each of SJI and SJG, with the participation of their respective principal executive officers and principal financial officers, evaluated the effectiveness of the design and operation of SJI''s and SJG's disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2017.2019. Based on that evaluation, the principal executive officer and principal financial officer of each of SJI and SJG concluded that the disclosure controls and procedures employed at SJI and SJG, respectively, are effective.


Management's Report on Internal Control over Financial Reporting


The management of each of SJI and SJG are responsible for establishing and maintaining adequate internal control over financial reporting, as defined under Exchange Act Rule 13a-15(f) and 15d-15(f). The internal control system of each of SJI and SJG is designed to provide reasonable assurance to its management and board of directors regarding the preparation and fair presentation of published financial statements.Under the supervision and with the participation of management, including each company's principal executive officer and principal financial officer, each of SJI and SJG conducted an evaluation of the effectiveness of its internal control over financial reporting based on the framework in Internal Control - Integrated Framework (2013 Framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission.  Based on our evaluation under that framework, management concluded that each company's internal control over financial reporting was effective as of December 31, 2017.2019.


The effectiveness of each company'sSJI's internal control over financial reporting as of December 31, 20172019 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report which is included underin Item 8 of this Item 9A.Annual Report on Form 10-K. This report is not applicable to SJG which is not an accelerated filer or large accelerated filer.



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Changes in Internal Control over Financial Reporting


ThereOn July 1, 2018, SJI completed the acquisition of ETG and ELK. See Note 20 - Business Combinations in the Notes to the Consolidated Financial Statements for additional information. Management has fully implemented and assessed the effectiveness of internal controls associated with ETG and ELK. Other than the implementation of these controls, there have not been any changechanges in theSJI’s internal control over financial reporting as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act, of either SJI or SJG, during the fiscal quarter ended December 31, 20172019, that hashave materially affected, or isare reasonably likely to materially affect, such company'sSJI’s internal control over financial reporting.


Item 9B. Other Information


NoneNone.


171

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
To the stockholders and the Board of Directors of South Jersey Industries, Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of South Jersey Industries, Inc. and subsidiaries (the “Company”) as of December 31, 2017,2019, based on criteria established in Internal Control -— Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2019, based on criteria established in Internal Control -— Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements and financial statement schedules as of and for the year ended December 31, 2017,2019, of the Company and our report dated February 23, 2018,27, 2020, expressed an unqualified opinion on those consolidated financial statements and financial statement schedules.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal ControlsControl over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.







/s/ Deloitte & Touche LLP
Philadelphia, Pennsylvania
February 26, 201827, 2020




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PART III


Item 10. Directors, Executive Officers and Corporate Governance
 
Information concerning Directors may be found under the captions “Director Elections”, “Director Nominees”, “Directors and Management”, “Security Ownership”, "Meetings of the Board of Directors and its Committees", and “The Board of Directors” in our definitive proxy statement for our 20182020 Annual Meeting of Shareholders (the “2018“2020 Proxy Statement”), which will be filed with the Securities and Exchange Commission within 120 days after the close of our fiscal year. Information concerning the members of the Company's Audit Committee and the Company's Audit Committee Financial Expert is also incorporated by reference to the 20182020 Proxy Statement under the captions "Meetings of the Board of Directors and its Committees," “Audit Committee,” and “Audit Committee Report.” Such information is incorporated herein by reference. Information required by this item relating to the executive officers of SJI is set forth in Item 4-A of this Report.


Code of Ethics


The Company has adopted a Code of Ethics for its Principal Executive, Financial and Accounting Officers. It is available on SJI's website, www.sjindustries.com, by clicking “Investors” and then “Corporate Governance.” We will post any amendment to or waiver of the Code to our website.


Item 11. Executive Compensation


Information concerning executive compensation may be found under the caption “Compensation Discussion & Analysis” of our 20182020 Proxy Statement. Such information is incorporated herein by reference.


Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters


The information in our 20182020 Proxy Statement set forth under the caption “Security Ownership” is incorporated herein by reference.


Item 13. Certain Relationships and Related Transactions, and Director Independence


The information in our 20182020 Proxy Statement set forth under the caption “The Board of Directors” and “Certain Relationships” is incorporated herein by reference.


Item 14. Principal Accountant Fees and Services


The information in our 20182020 Proxy Statement set forth under the caption “Audit Committee Report” is incorporated herein by reference.
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PART IV
 
Item 15. Exhibits and Financial Statement Schedules


(a)Listed below are all financial statements and schedules filed as part of this Report:
(a) Listed below are all financial statements and schedules filed as part of this Report:
 
1 - The consolidated financial statements and notes to consolidated financial statements of South Jersey Industries, Inc. and subsidiaries and the financial statements and notes to financial statements of South Jersey Gas Company, together with the respective reports thereon of Deloitte & Touche LLP, dated February 26, 2018,27, 2020, are filed as part of this Report under Item 8 - Financial Statements and Supplementary Data.
 
2 - Supplementary Financial Information


Information regarding selected quarterly financial data can be found on page 147 ofin this Report.Report under Item 8 - Financial Statements and Supplementary Data.


3 - Schedules

Schedule I - Supplemental SchedulesCondensed Financial Information of SJI as of December 31, 20172019 and 20162018 and for the three years ended December 31, 2017, 2016,2019, 2018, and 2015 (page 160).2017.

Reports of Independent Registered Public Accounting Firm of Deloitte & Touche LLP (page 159).


Schedule II - Valuation and Qualifying Accounts (page 164).Accounts.


All schedules, other than thatthose listed above, are omitted because the information called for is included in the financial statements filed or because they are not applicable or are not required.
 
(b) List of Exhibits (Exhibit Number is in Accordance with the Exhibit Table in Item 601 of Regulation S-K).

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(b)Exhibit NumberListDescriptionReference
Common Stock Underwriting Agreement, dated as of Exhibits (Exhibit Number is in Accordance with theApril 18, 2018, for SJI.Incorporated by reference from Exhibit Table in Item 6011.1 of Regulation S-K).

Form 8-K of SJI as filed April 23, 2018.
Equity Units Underwriting Agreement, dated as of April 18, 2018, for SJI.Incorporated by reference from Exhibit NumberDescriptionReference1.2 of Form 8-K of SJI as filed April 23, 2018.
Asset Purchase Agreement, dated as of October 15, 2017, by and between Pivotal Utility Holdings, Inc. and South Jersey Industries, Inc.

Incorporated by reference from Exhibit 2.1 of Form 8-K of SJI as filed October 16, 2017.
Asset Purchase Agreement, dated as of June 27, 2018, by and between Marina and GSRP Project Holdings I, LLC.Incorporated by reference from Exhibit 2.1 of Form 8-K of SJI as filed July 3, 2018.
Solar Renewable Energy Certificate Purchase and Sale Agreement, dated as of June 27, 2018, by and between Marina and GSRP Project Holdings I, LLC.Incorporated by reference from Exhibit 2.2 of Form 8-K of SJI as filed July 3, 2018.
Fifth Amendment Asset Purchase Agreement dated as of February 27, 2019 by and between Marina and GSRP Project Holdings I, LLC.Incorporated by reference from Exhibit 2(b)(iii) of Form 10-K of SJI as filed February 28, 2019.
Purchase Agreement, dated as of December 5, 2019, by and between Marina and DTE Atlantic, LLC.Incorporated by reference from Exhibit 2.1 of Form 8-K of SJI as filed December 9, 2019.
Certificate of Incorporation of South Jersey Industries, Inc., dated November 10, 1969.Incorporated by reference from Exhibit 3.1 of Form 8-K of SJI as filed May 10, 2016.
Certificate of Amendment of the Certificate of Incorporation of SJI, dated April 21, 1983.Incorporated by reference from Exhibit 3.2 of Form 8-K of SJI as filed May 10, 2016.
Certificate of Amendment of the Certificate of Incorporation of SJI, dated April 19, 1984.Incorporated by reference from Exhibit 3.3 of Form 8-K of SJI as filed May 10, 2016.
Certificate of Amendment of the Certificate of Incorporation of SJI, dated April 23, 1987.Incorporated by reference from Exhibit 3.4 of Form 8-K of SJI as filed May 10, 2016.
South Jersey Industries, Inc.
Part IV


Certificate of Amendment of the Certificate of Incorporation of SJI, dated October 7, 1996.Incorporated by reference from Exhibit 3.6 of Form 8-K of SJI as filed May 10, 2016.
Certificate of Amendment of the Certificate of Incorporation of SJI, dated May 5, 2005.Incorporated by reference from Exhibit 3.7 of Form 8-K of SJI as filed May 10, 2016.
Certificate of Amendment of the Certificate of Incorporation of SJI, dated April 28, 2009.Incorporated by reference from Exhibit 3.8 of Form 8-K of SJI as filed May 10, 2016.
Certificate of Amendment of the Certificate of Incorporation of SJI, dated June 2014.Incorporated by reference from Exhibit 3.9 of Form 8-K of SJI as filed May 10, 2016.
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Certificate of Amendment of the Certificate of Incorporation of SJI, dated February 27, 2015.Incorporated by reference from Exhibit 3.10 of Form 8-K of SJI as filed May 10, 2016.
Certificate of Incorporation of South Jersey Gas Company.Incorporated by reference from Exhibit 3(a) of Form 10-K of SJG as filed March 26, 1997.
Bylaws of South Jersey Industries, Inc. as amended and restated through April 21, 2017.February 14, 2020.Incorporated by reference from Exhibit 3.2(ii)3.1 of Form 8-K8-K/A of SJI as filed April 24, 2017.February 19, 2020.
Bylaws of South Jersey Gas Company as amended and restated through April 21, 2017.Incorporated by reference from Exhibit 3.2(ii) of Form 8-K of SJG as filed April 24, 2017.
Form of Stock Certificate for common stock.Incorporated by reference from Exhibit 4.9 of Form 8-K of SJI as filed April 23, 2018.
Junior Subordinated Indenture, dated as of April 23, 2018, for SJI.Incorporated by reference from Exhibit 4.1 of Form S-38-K of SJI as filed May 10, 2016 (333-211259).April 23, 2018.
First Supplemental Indenture, dated as of April 23, 2018, for SJI.Incorporated by reference from Exhibit 4.2 of Form 8-K of SJI as filed April 23, 2018.
Form of 2018 Series A 3.70% Remarketable Junior Subordinated Notes due 2031, dated as of April 23, 2018, for SJI.
Incorporated by reference from Exhibit 4.3 of Form 8-K of SJI as filed April 23, 2018.

Purchase Contract and Pledge Agreement, dated as of April 23, 2018, for SJI.Incorporated by reference from Exhibit 4.4 of Form 8-K of SJI as filed April 23, 2018.
Form of Remarketing Agreement, dated as of April 23, 2018, for SJI.Incorporated by reference from Exhibit 4.5 of Form 8-K of SJI as filed April 23, 2018.
Form of Corporate Units, dated as of April 23, 2018, for SJI.Incorporated by reference from Exhibit 4.6 of Form 8-K of SJI as filed April 23, 2018.
Form of Treasury Units, dated as of April 23, 2018, for SJI.Incorporated by reference from Exhibit 4.7 of Form 8-K of SJI as filed April 23, 2018.
Forward Sale Agreement, dated, April 18, 2018, for SJI.Incorporated by reference from Exhibit 4.8 of Form 8-K of SJI as filed April 23, 2018.
First Mortgage Indenture, dated as of July 2, 2018, for ETG.Incorporated by reference from Exhibit 4.1 of Form 8-K of SJI as filed December 26, 2018.
First Supplemental Indenture, dated as of December 20, 2018, for ETG.Incorporated by reference from Exhibit 4.2 of Form 8-K of SJI as filed December 26, 2018.
Supplemental Indenture Amending and Restating First Mortgage Indenture, dated as of January 23, 2017, for SJG.Incorporated by reference from Exhibit 4.1 of Form 8-K of SJG dated January 30, 2017.
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First Supplemental Indenture, dated as of January 23, 2017, for SJGIncorporated by reference from Exhibit 4.2 of Form 8-K of SJG dated January 30, 2017.
Second Supplemental Indenture, dated as of September 27, 2019, for ETG.Incorporated by reference from Exhibit 4.1 of Form 8-K of SJI dated October 2, 2019.
First Supplement to Indenture of Trust dated as of June 29, 2000.Incorporated by reference from Exhibit 4.1 of Form 8-K of SJG dated July 12, 2001.
Second Supplement to Indenture of Trust dated as of July 5, 2000.Incorporated by reference from Exhibit 4.2 of Form 8-K of SJG dated July 12, 2001.
Third Supplement to Indenture of Trust dated as of July 9, 2001.Incorporated by reference from Exhibit 4.3 of Form 8-K of SJG dated July 12, 2001.
Fourth Supplement to Indenture of Trust dated as of February 26, 2010.Incorporated by reference from Exhibit 4.1 of Form 8-K of SJG dated March 5, 2010.
Fifth Supplement, dated as of January 25, 2017, for SJG

Incorporated by reference from Exhibit 4.3 of Form 8-K of SJG dated January 30, 2017.

South Jersey Industries, Inc.
Part IV

Exhibit NumberDescriptionReference

Exhibit NumberDescriptionReference

Deferred Payment Plan for Directors of South Jersey Industries, Inc., South Jersey Gas Company, Energy & Minerals, Inc., R&T Group, Inc. and South Jersey Energy Company as amended and restated October 21, 1994.Incorporated by reference from Exhibit (10)(l) of Form 10-K for 1994 (1-6364).
Schedule of Deferred Compensation Agreements.Incorporated by reference from Exhibit (10)(l)(b) of Form 10-K for 1997 (1-6364).
Form of Officer Change in Control Agreements, effective January 1, 2013, between certain officers and either South Jersey Industries, Inc. or its subsidiaries.Incorporated by reference from Exhibit 10.1 of Form 8-K of SJI as filed January 25, 2013.
Schedule of Officer Agreements (filed herewith).
Officer Severance Plan.Incorporated by reference from Exhibit (10)(f)(i) of Form 10-K for 2014.
 
Supplemental Executive Retirement Program, as amended and restated effective January 1, 2009 and Form of Agreement between certain SJI or subsidiary officers.Incorporated by reference from Exhibit (10)(f)(ii) of Form 10-K for 2009.
South Jersey Industries, Inc. 1997 Stock-Based Compensation Plan (As Amended and Restated Effective January 1, 2012).Incorporated by reference from Exhibit 10.3 of Form 8-K of SJI as filed January 6, 2012.
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Note Purchase Agreement dated as of March 1, 2010.Incorporated by reference from Exhibit 10 of Form 8-K of SJG dated March 5, 2010.
Note Purchase Agreement dated as of December 30, 2010.Incorporated by reference from Exhibit 10 of Form 8-K of SJG dated January 5, 2011.
Commercial Paper Dealer Agreement, dated as of July 1, 2011, for SJG.Incorporated by reference from Exhibit 10.1 of Form 8-K of SJG dated July 1, 2011.
Commercial Paper Dealer Agreement, dated as of January 5, 2012, for SJG.Incorporated by reference from Exhibit 10.1 of Form 8-K of SJG dated January 9, 2012.
Letter of Credit Reimbursement Agreements dated as of March 15, 2012.Incorporated by reference from Exhibit 10.1-10.3 of Form 8-K of SJI dated March 21, 2012.
Note Purchase Agreement dated as of April 2, 2012.Incorporated by reference from Exhibit 10.1 of Form 8-K of SJG dated April 3, 2012.
Note Purchase Agreement, dated as of June 28, 2012, for SJI.Incorporated by reference from Exhibit 10.1 of Form 8-K of SJI dated June 29, 2012.
Note Purchase Agreement, dated as of September 20, 2012, for SJG.Incorporated by reference from Exhibit 10.1 of Form 8-K of SJG dated September 25, 2012.
Note Purchase Agreement, dated as of November 21, 2013, for SJG.Incorporated by reference from Exhibit 10.1 of Form 8-K of SJG dated November 21, 2013.
(10)(g)(x)
Note Purchase Agreement, dated as of June 26, 2014, for SJI.Incorporated by reference from Exhibit 10.1 of Form 8-K of SJI dated June 26, 2014.
South Jersey Industries, Inc.
Part IV

Term Loan Credit Agreement, dated as of October 28, 2015, for SJI.Incorporated by reference from Exhibit 10.1 of Form 8-K of SJI dated November 2, 2015.
First Amendment to Letter of Credit Reimbursement Agreements dated as of March 10, 2016.Incorporated by reference from Exhibit 10.1-10.3 of Form 8-K of SJI dated March 11, 2016.
364-Day Revolving Credit Agreement, dated as of September 7, 2016, for SJI.Incorporated by reference from Exhibit 10.1 of Form 8-K of SJI dated September 9, 2016.
Note Purchase Agreement, dated as of January 25, 2017, for SJG.Incorporated by reference from Exhibit 10.1 of Form 8-K of SJG dated January 30, 2017.
Term Loan Credit Agreement, dated as of January 26, 2017, for SJG.Incorporated by reference from Exhibit 10.1 of Form 8-K of SJG dated January 30, 2017.
Loan Agreement by and between New Jersey Economic Development Authority and SJG dated April 1, 2006.Incorporated by reference from Exhibit 10 of Form 8-K of SJG as filed April 26, 2006.
Five-Year Revolving Credit Agreement, dated as of August 7, 2017, for SJI.Incorporated by reference from Exhibit 10.1 of Form 8-K of SJI dated August 10, 2017.
Five-Year Revolving Credit Agreement, dated as of August 14, 2017, for SJG.Incorporated by reference from Exhibit 10.1 of Form 8-K of SJG dated August 15, 2017.
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Note Purchase Agreement, dated as of August 16, 2017, for SJI.Incorporated by reference from Exhibit 10.1 of Form 8-K of SJI dated January 19, 2018.
First Amendment to 364-Day Revolving Credit Agreement, dated as of September 6, 2017, for SJI.Incorporated by reference from Exhibit 10.1 of Form 8-K of SJI dated September 6, 2017.
First Amendment to 364-Day Revolving CreditNote Purchase Agreement, dated as of September 6, 2017,April 25, 2018, for SJI.Incorporated by reference from Exhibit 10.1 of Form 8-K of SJI dated August 16, 2017.April 27, 2018.
Revolving Credit Agreement, dated as of June 26, 2018, for ETG and ELK (Borrowers) and SJI (Guarantor).Incorporated by reference from Exhibit 10.2 of Form 8-K of SJI dated July 2, 2018.
Second Amendment to the Note Purchase Agreement (dated as of June 28, 2012) for SJI, dated as of July 3, 2018.Incorporated by reference from Exhibit 99.1 of Form 8-K of SJI dated July 10, 2018.
Second Amendment to the Note Purchase Agreement (dated as of August 16, 2017) for SJI, dated as of July 3, 2018.Incorporated by reference from Exhibit 99.3 of Form 8-K of SJI dated July 10, 2018.
First Amendment to the Note Purchase Agreement (dated as of April 25, 2018) for SJI, dated as of July 3, 2018.Incorporated by reference from Exhibit 99.4 of Form 8-K of SJI dated July 10, 2018.
First Amendment to the Note Purchase Agreement (dated as of March 1, 2010) for SJG, dated as of July 3, 2018.Incorporated by reference from Exhibit 99.5 of Form 8-K of SJI dated July 10, 2018.
First Amendment to the Note Purchase Agreement (dated as of December 30, 2010) for SJG, dated as of July 3, 2018.Incorporated by reference from Exhibit 99.6 of Form 8-K of SJI dated July 10, 2018.
First Amendment to the Note Purchase Agreement (dated as of April 2, 2012) for SJG, dated as of July 3, 2018.Incorporated by reference from Exhibit 99.7 of Form 8-K of SJI dated July 10, 2018.
Second Amendment to the Note Purchase Agreement (dated as of September 20, 2012) for SJG, dated as of July 3, 2018.Incorporated by reference from Exhibit 99.8 of Form 8-K of SJI dated July 10, 2018.
First Amendment to the Note Purchase Agreement (dated as of November 21, 2013) for SJG, dated as of July 3, 2018.Incorporated by reference from Exhibit 99.9 of Form 8-K of SJI dated July 10, 2018.
First Amendment to the Note Purchase Agreement (dated as of January 25, 2017) for SJG, dated as of July 3, 2018.Incorporated by reference from Exhibit 99.10 of Form 8-K of SJI dated July 10, 2018.
First Amendment to the Five-Year Revolving Credit Agreement (dated as of August 14, 2017) for SJG, dated as of June 14, 2018.Incorporated by reference from Exhibit 99.11 of Form 8-K of SJI dated July 10, 2018.
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First Amendment to the Term Loan Credit Agreement (dated as of January 26, 2017) for SJG, dated as of June 15, 2018.Incorporated by reference from Exhibit 99.12 of Form 8-K of SJI dated July 10, 2018.
Third Amendment to the 364-Day Revolving Credit Agreement (dated as of September 6, 2016) for SJI, dated as of June 13, 2018.Incorporated by reference from Exhibit 99.13 of Form 8-K of SJI dated July 10, 2018.
Second Amendment to the Five-Year Revolving Credit Agreement (dated as of August 7, 2017) for SJI, dated as of June 14, 2018.Incorporated by reference from Exhibit 99.14 of Form 8-K of SJI dated July 10, 2018.
Second Amendment to the Term Loan Credit Agreement (dated as of October 28, 2015) for SJI, dated as of June 26, 2018.Incorporated by reference from Exhibit 99.15 of Form 8-K of SJI dated July 10, 2018.
Term Loan Credit Agreement, dated as of October 26, 2018, for SJG.Incorporated by reference from Exhibit 10.1 of Form 8-K of SJG dated October 31, 2018.
Bond Purchase Agreement, dated as of December 20, 2018, for ETG.Incorporated by reference from Exhibit 10.1 of Form 8-K of SJI dated December 26, 2018.
Second Amendment to Five-Year Revolving Credit Agreement, dated as of June 7, 2019, for SJG.Incorporated by reference from Exhibit 10.1 of Form 8-K of SJG dated June 12, 2019.
Third Amendment to Five-Year Revolving Credit Agreement and Commitment Increase Agreement, dated as of June 7, 2019, for SJI.Incorporated by reference from Exhibit 10.1 of Form 8-K of SJI dated June 12, 2019.
Second Amendment to Two-Year Revolving Credit Agreement and Extension Agreement, dated as of June 7, 2019, for SJI, ETG and ELK.Incorporated by reference from Exhibit 10.2 of Form 8-K of SJI dated June 12, 2019.
Fourth Amendment to 364-Day Revolving Credit Agreement dated as of September 6, 2019, for SJI.Incorporated by reference from Exhibit 10.1 of Form 8-K of SJI dated September 12, 2019.
Credit Agreement dated as of September 23, 2019, for SJI.Incorporated by reference from Exhibit 10.1 of Form 8-K of SJI dated September 23, 2019.
Bond Purchase Agreement, dated as of September 27, 2019, for ETG.Incorporated by reference from Exhibit 10.1 of Form 8-K of SJI dated October 2, 2019.
Equity Distribution and Purchase Agreement, dated as of December 31, 2015, by and among Energenic, Marina and DCO Energy, LLC.Incorporated by reference from Exhibit 10.1 of Form 8-K of SJI dated January 7, 2016.
Equity Distribution and Purchase Agreement, dated as of December 31, 2015, by and among Energenic, DCO Energy, LLC and Marina.Incorporated by reference from Exhibit 10.2 of Form 8-K of SJI dated January 7, 2016.
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SJI - Calculation of Ratio of Earnings to Fixed Charges (Before Federal Income Taxes) (filed herewith).
(12.2)
SJG - Calculation of Ratio of Earnings to Fixed Charges (Before Federal Income Taxes) (filed herewith).
(14)
Code of Ethics.Incorporated by reference from Exhibit 14 of Form 10-K for 2007.
South Jersey Industries, Inc.
Part IV

SJI - Subsidiaries of the Registrant (filed herewith).
Independent Registered Public Accounting Firm's Consent (filed herewith).
SJI - Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
SJG - Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
SJI - Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
SJG - Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
SJI - Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
SJG - Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
SJI - Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
SJG - Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
(101.INS)eXtensible Business Reporting Language (XBRL) Instance Document (filed herewith).

(101.SCH)XBRL Taxonomy Extension Schema (filed herewith).
(101.CAL)XBRL Taxonomy Extension Calculation Linkbase (filed herewith).
(101.DEF)XBRL Taxonomy Extension Definition Linkbase (filed herewith).
(101.LAB)XBRL Taxonomy Extension Label Linkbase (filed herewith).
(101.PRE)XBRL Taxonomy Extension Presentation Linkbase (filed herewith).
 
  * Constitutes a management contract or a compensatory plan or arrangement.


181
South Jersey Industries, Inc.
Part IV

SIGNATURES


Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.


SOUTH JERSEY INDUSTRIES, INC.
BY:/s/ Stephen H. ClarkCielo Hernandez
Stephen H. ClarkCielo Hernandez
ExecutiveSenior Vice President & Chief Financial Officer
 Date:February 26, 201827, 2020


Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.


SignatureTitleDate
 /s/ Walter M. Higgins, IIIDirector, Chairman of the BoardFebruary 27, 2020
 (Walter M. Higgins, III)
/s/ Michael J. RennaDirector, President & Chief Executive OfficerFebruary 27, 2020
(Michael J. Renna)(Principal Executive Officer)
/s/ Cielo HernandezSenior Vice President & Chief Financial OfficerFebruary 27, 2020
(Cielo Hernandez)(Principal Financial & Accounting Officer)
 /s/ Sarah M. BarpoulisDirectorFebruary 27, 2020
 (Sarah M. Barpoulis)
SignatureTitleDate
 /s/ Walter M. Higgins, IIIDirector, Chairman of the BoardFebruary 26, 2018
 (Walter M. Higgins, III)
/s/ Michael J. RennaDirector, President & Chief Executive OfficerFebruary 26, 2018
(Michael J. Renna)(Principal Executive Officer)
/s/ Stephen H. ClarkExecutive Vice President & Chief Financial OfficerFebruary 26, 2018
(Stephen H. Clark)(Principal Financial and Accounting Officer)
 /s/ Sarah M. BarpoulisDirectorFebruary 26, 2018
 (Sarah M. Barpoulis)
 /s/ Thomas A. BrackenDirectorFebruary 26, 2018
 (Thomas A. Bracken)
 /s/ Keith S. CampbellDirectorFebruary 26, 201827, 2020
 (Keith S. Campbell)
 /s/ Victor A. FortkiewiczDirectorFebruary 26, 201827, 2020
 (Victor A. Fortkiewicz)
 /s/ Sheila Hartnett-DevlinDirectorFebruary 26, 201827, 2020
 (Sheila Hartnett-Devlin)
/s/ Sunita HolzerDirectorFebruary 26, 201827, 2020
 (Sunita Holzer)
 /s/ Joseph M. RigbyDirectorFebruary 26, 201827, 2020
 (Joseph M. Rigby)
 /s/ Frank L. SimsDirectorFebruary 26, 201827, 2020
 (Frank L. Sims)
 /s/ G. Edison HollandDirectorFebruary 27, 2020
 (G. Edison Holland)
 /s/ Kevin O'DowdDirectorFebruary 27, 2020
 (Kevin O'Dowd)









182
South Jersey Industries, Inc.
Part IV


SIGNATURES


Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


SOUTH JERSEY GAS COMPANY
BY:/s/ Stephen H. ClarkCielo Hernandez
Stephen H. ClarkCielo Hernandez
Chief Financial Officer
 Date:February 26, 201827, 2020


Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.


SignatureTitleDate
/s/  David Robbins, Jr.President & DirectorFebruary 26, 201827, 2020
(David Robbins, Jr.)(Principal Executive Officer)
/s/  Stephen H. ClarkCielo HernandezChief Financial Officer & DirectorFebruary 26, 201827, 2020
(Stephen H. Clark)Cielo Hernandez)(Principal Financial and& Accounting Officer)
/s/ Walter M. Higgins IIIDirector, Chairman of the BoardFebruary 26, 201827, 2020
 (Walter M. Higgins III)
/s/  Thomas A. BrackenMelissa OrsenDirectorFebruary 26, 201827, 2020
(Thomas A. Bracken)Melissa Orsen)
/s/  Victor A. FortkiewiczDirectorFebruary 26, 2018
(Victor A. Fortkiewicz)
/s/ Sunita HolzerDirectorFebruary 26, 2018
 (Sunita Holzer)
/s/ Joseph M. RigbyDirectorFebruary 26, 201827, 2020
 (Joseph M. Rigby)



183
South Jersey Industries, Inc.
Part IV

SCHEDULE I - SOUTH JERSEY INDUSTRIES, INC.

CONDENSED STATEMENTS OF INCOME
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM(In Thousands)

 201920182017
    
Management Service Fee Revenues$34,757  $42,934  $34,321  
Operating Expenses:   
   Operations42,481  67,869  43,513  
   Depreciation646  600  311  
   Energy and Other Taxes1,842  1,517  1,324  
      Total Operating Expenses44,969  69,986  45,148  
      Operating (Loss) Income(10,212) (27,052) (10,827) 
Other Income:   
   Equity in Earnings (Losses) of Subsidiaries (See Note 1)118,910  65,327  (2,793) 
   Other10,863  17,608  15,083  
      Total Other Income129,773  82,935  12,290  
   Interest Charges58,956  54,678  23,818  
   Income Taxes(16,584) (16,698) (18,951) 
      Income (Loss) from Continuing Operations77,189  17,903  (3,404) 
   Equity in Undistributed Earnings of Discontinued Operations(272) (240) (86) 
      Net Income (Loss)$76,917  $17,663  $(3,490) 
The accompanying notes are an integral part of the condensed financial statements.
 
To the Board of Directors and Stockholders ofSCHEDULE I - SOUTH JERSEY INDUSTRIES, INC.
South Jersey Industries, Inc.CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
Folsom, New Jersey(In Thousands)

Opinion on the Financial Statement Schedules
 201920182017
Net Income (Loss)$76,917  $17,663  $(3,490) 
Other Comprehensive Income (Loss) - Net of Tax   
Postretirement Liability Adjustment, net of tax of $2,539, $(3,731), and $4,106, respectively(6,498) 10,636  (10,920) 
Reclassification of Unrealized Gain on Derivatives - Other to Net Income, net of tax of $(11), $(12), and $(988), respectively35  34  1,536  
Total Other Comprehensive Income (Loss) - Net of Tax(6,463) 10,670  (9,384) 
Comprehensive Income (Loss)$70,454  $28,333  $(12,874) 


We have audited the consolidated financial statements of South Jersey Industries, Inc. and subsidiaries (the "Company") as of December 31, 2017 and 2016, and for eachThe accompanying notes are an integral part of the three years in the period ended December 31, 2017, and the Company's internal control overcondensed financial reporting as of December 31, 2017, and have issued our reports thereon dated February 23, 2018; such consolidated financial statements and reports are included elsewhere in this Form 10-K and in your 2017 Annual Report to Shareholders. Our audits also included the financial statement schedules of the Company listed in the Index at Item 15(a) 2. These financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statement schedules based on our audits. In our opinion, such financial statement schedules, when considered in relation to the financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.statements.







184
/s/ Deloitte & Touche LLP
Philadelphia, Pennsylvania
February 26, 2018
South Jersey Industries, Inc.
Part IV


SCHEDULE I - SOUTH JERSEY INDUSTRIES, INC.
CONDENSED STATEMENTS OF INCOME
(In Thousands)

  2017 2016 2015
   
  
  
Management Service Fee Revenues $34,321
 $25,463
 $20,990
       
Operating Expenses:      
   Operations 45,182
 23,852
 17,979
   Depreciation 311
 377
 406
   Energy and Other Taxes 1,324
 1,033
 806
      Total Operating Expenses 46,817
 25,262
 19,191
       
      Operating (Loss) Income (12,496) 201
 1,799
       
Other Income:      
   Equity in (Losses) Earnings of Subsidiaries (See Note 1) (2,793) 119,061
 105,610
   Other 16,752
 11,953
 10,145
       
      Total Other Income 13,959
 131,014
 115,755
       
   Interest Charges 23,818
 12,148
 11,822
   Income Taxes (18,951) 6
 122
       
      (Loss) Income from Continuing Operations (3,404) 119,061
 105,610
       
   Equity in Undistributed Earnings of Discontinued Operations (86) (251) (503)
       
      Net (Loss) Income $(3,490) $118,810
 $105,107

SCHEDULE I - SOUTH JERSEY INDUSTRIES, INC.
CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
(In Thousands)
  2017 2016 2015
   
  
  
Net (Loss) Income $(3,490) $118,810
 $105,107
Other Comprehensive Income (Loss) - Net of Tax      
Postretirement Liability Adjustment (A) (10,920) (3,197) 5,518
Unrealized Gain (Loss) on Available-for-Sale Securities (B) —
 118
 (53)
Unrealized Gain on Derivatives - Other (B) 1,536
 197
 294
Total Other Comprehensive (Loss) Income - Net of Tax (9,384) (2,882) 5,759
       
Comprehensive (Loss) Income $(12,874) $115,928
 $110,866
(A) Determined using a combined average statutory tax rate of 27% for 2017 and 40% for 2016 and 2015.
(B) Determined using a combined average statutory tax rate of 39% for 2017 and 40% for 2016 and 2015.

South Jersey Industries, Inc.
Part IV


SCHEDULE I - SOUTH JERSEY INDUSTRIES, INC.
CONDENSED STATEMENTS OF RETAINED EARNINGS
(In Thousands)

 201920182017
Retained Earnings - Beginning$343,258  $420,351  $510,597  
Net Income (Loss)76,917  17,663  (3,490) 
420,175  438,014  507,107  
Dividends Declared - Common Stock(106,938) (94,756) (87,308) 
Excess Tax Benefit on Restricted Stock—  —  552  
Retained Earnings - Ending$313,237  $343,258  $420,351  
The accompanying notes are an integral part of the condensed financial statements.
  2017 2016 2015
   
  
  
Retained Earnings - Beginning $510,597
 $474,167
 $439,218
Net (Loss) Income (3,490) 118,810
 105,107
  507,107
 592,977
 544,325
       
Dividends Declared - Common Stock (87,308) (82,380) (70,158)
Excess Tax Benefit on Restricted Stock 552
 —
 —
       
Retained Earnings - Ending $420,351
 $510,597
 $474,167


SCHEDULE I - SOUTH JERSEY INDUSTRIES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE TWELVE MONTHS ENDED DECEMBER 31,
(In Thousands)



 201920182017
CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES$(12,039) $(6,447) $17,339  
CASH FLOWS FROM INVESTING ACTIVITIES:   
Net (Advances to) Repayments from Associated Companies(42,084) 366,342  (16,096) 
Capital Expenditures(29,944) (24,155) (801) 
Cash Paid for Acquisition—  (1,740,291) —  
Proceeds from Sale of PPE171  51  —  
Proceeds from (Purchase of) Company Owned Life Insurance1,694  (1,298) (9,180) 
Investment in Affiliate—  —  (40,000) 
Net Cash Used in Investing Activities(70,163) (1,399,351) (66,077) 
CASH FLOWS FROM FINANCING ACTIVITIES:   
Proceeds from Issuance of Long Term Debt194,657  1,592,500  50,000  
Principal Repayments of Long Term Debt(715,000) —  (16,000) 
Payments for Issuance of Long Term Debt(876) (15,513) (12,174) 
Net Borrowings from (Repayments of) Short-Term Credit Facilities496,100  (217,400) 102,600  
Dividends on Common Stock(106,938) (94,756) (87,308) 
Net Settlement of Restricted Stock—  (776) (751) 
Proceeds from Sale of Common Stock189,032  173,750  —  
Payments for the Issuance of Common Stock—  (7,149) —  
Net Cash Provided by Financing Activities56,975  1,430,656  36,367  
Net (Decrease) Increase in Cash, Cash Equivalents and Restricted Cash(25,227) 24,858  (12,371) 
Cash, Cash Equivalents and Restricted Cash at Beginning of Year25,334  476  12,847  
Cash, Cash Equivalents and Restricted Cash at End of Year$107  $25,334  $476  
The accompanying notes are an integral part of the condensed financial statements.

185

  2017 2016 2015
       
CASH PROVIDED BY OPERATING ACTIVITIES (See Note 1) $17,339
 $20,507
 $38,926
       
CASH FLOWS FROM INVESTING ACTIVITIES:      
       
Net (Advances to) Repayments from Associated Companies (16,096) 32,300
 (118,802)
Capital Expenditures (801) (345) (150)
Purchase of Company Owned Life Insurance (9,180) (2,398) (2,328)
Investment in Affiliate (40,000) (65,000) —
       
Net Cash Used in Investing Activities (66,077) (35,443) (121,280)
       
CASH FLOWS FROM FINANCING ACTIVITIES:      
       
Proceeds from Issuance of Long Term Debt 50,000
 —
 50,000
Principal Repayments of Long Term Debt (16,000) —
 (114,000)
Payments for Issuance of Long Term Debt (12,174) (84) (55)
Net Borrowings from (Repayments of) Short-Term Credit Facilities 102,600
 (105,500) 153,000
Dividends on Common Stock (87,308) (82,380) (70,158)
Net Settlement of Restricted Stock (See Note 1) (751) (387) (333)
Proceeds from Sale of Common Stock —
 214,426
 63,192
       
Net Cash Provided by Financing Activities 36,367
 26,075
 81,646
       
Net (Decrease) Increase in Cash, Cash Equivalents and Restricted Cash (12,371) 11,139
 (708)
       
Cash, Cash Equivalents and Restricted Cash at Beginning of Year 12,847
 1,708
 2,416
       
Cash, Cash Equivalents and Restricted Cash at End of Year $476
 $12,847
 $1,708

South Jersey Industries, Inc.
Part IV


SCHEDULE I - SOUTH JERSEY INDUSTRIES, INC.
CONDENSED BALANCE SHEETS (In Thousands)
20192018
Assets
Property Plant and Equipment:
Nonutility Property, Plant and Equipment, at cost$5,014  $4,188  
Accumulated Depreciation(2,745) (2,488) 
Property, Plant and Equipment - Net2,269  1,700  
Investments: 
Investments in Subsidiaries2,558,155  2,458,680  
Available-for-Sale Securities40  41  
Total Investments2,558,195  2,458,721  
Current Assets: 
Cash and Cash Equivalents107  25,334  
Receivable from Associated Companies312,449  270,478  
Accounts Receivable57  38  
Other25,460  19,100  
Total Current Assets338,073  314,950  
Other Noncurrent Assets56,092  53,838  
Total Assets$2,954,629  $2,829,209  
Capitalization and Liabilities 
Equity: 
Common Stock SJI 
Par Value $1.25 a share 
Authorized - 120,000,000 shares 
Outstanding Shares - 92,394,155 (2019) and 85,506,218 (2018)$115,493  $106,883  
Premium on Common Stock1,027,902  843,268  
Treasury Stock (at par)(289) (292) 
Accumulated Other Comprehensive Loss(32,558) (26,095) 
Retained Earnings313,237  343,258  
Total Equity1,423,785  1,267,022  
Long-Term Debt854,599  708,360  
Current Liabilities:  
Notes Payable - Banks573,100  77,000  
Current Portion of Long-Term Debt50,000  715,000  
Payable to Associated Companies784  899  
Accounts Payable3,088  6,378  
Other Current Liabilities25,353  27,895  
Total Current Liabilities652,325  827,172  
Other Noncurrent Liabilities23,920  26,655  
Total Capitalization and Liabilities$2,954,629  $2,829,209  
The accompanying notes are an integral part of the condensed financial statements.

186
  2017 2016
Assets    
     
Property Plant and Equipment:    
Nonutility Property, Plant and Equipment, at cost $3,318
 $2,685
Accumulated Depreciation (2,194) (2,026)
   
  
Property, Plant and Equipment - Net 1,124
 659
   
  
Investments:  
  
Investments in Subsidiaries 1,209,308
 1,233,856
Available-for-Sale Securities 36
 32
   
  
Total Investments 1,209,344
 1,233,888
   
  
Current Assets:  
  
Cash and Cash Equivalents 476
 12,847
Receivable from Associated Companies 636,327
 550,227
Accounts Receivable 52
 49
Other 5,017
 —
   
  
Total Current Assets 641,872
 563,123
   
  
Other Noncurrent Assets 50,735
 44,974
   
  
Total Assets $1,903,075
 $1,842,644
   
  
Capitalization and Liabilities  
  
   
  
Equity:  
  
Common Stock SJI  
  
Par Value $1.25 a share  
  
Authorized - 120,000,000 shares  
  
Outstanding Shares - 79,549,080 (2017) and 79,478,055 (2016) $99,436
 $99,347
Premium on Common Stock 709,658
 706,943
Treasury Stock (at par) (271) (266)
Accumulated Other Comprehensive Loss (36,765) (27,381)
Retained Earnings 420,351
 510,597
   
  
Total Equity 1,192,409
 1,289,240
   
  
Long-Term Debt 364,946
 323,971
     
Current Liabilities:  
  
Notes Payable - Banks 294,400
 191,800
Current Portion of Long-Term Debt —
 16,000
Payable to Associated Companies 404
 382
Accounts Payable 17,316
 211
Other Current Liabilities 7,763
 7,707
   
  
Total Current Liabilities 319,883
 216,100
   
  
Other Noncurrent Liabilities 25,837
 13,333
   
  
Total Capitalization and Liabilities $1,903,075
 $1,842,644

South Jersey Industries, Inc.
Part IV


Notes to Condensed Financial Statements


1.BASIS OF PRESENTATION:

1.BASIS OF PRESENTATION:

Pursuant to rules and regulations of the SEC, the parent-company only condensed financial statements of SJI do not reflect all of the information and notes normally included with financial statements prepared in accordance with GAAP in the United States. Therefore, these condensed financial statements should be read in conjunction with the consolidated financial statements and related notes included under Item 8 in this Form 10-K.

Certain reclassifications have been made to SJI's prior period condensed statements of cash flows to conform to the current period presentation. Cash paid by an employer when directly withholding shares for tax-withholding purposes is now classified as a financing activity in the condensed statements of cash flows to conform to ASU 2016-09, which is described under "New Accounting Pronouncements" in Note 1 to the consolidated financial statements. This caused SJI's prior period Cash Flows Provided by Operating Activities to increase by $0.4 million and $0.3 million for 2016 and 2015, respectively, and Net Cash Flows from Financing Activities to decrease by the same amount.
Dividends received from subsidiaries were $20.0 million and $40.8 million for 2017 and 2015, respectively.2017. Dividends were not0t received from subsidiaries in 2016.2018 or 2019.


The following table provides a reconciliation between SJI's equity in earnings from its subsidiaries to total income from continuing operations (in thousands):


Year Ended December 31, 2019Year Ended December 31, 2018Year Ended December 31, 2017
Equity in Earnings (Losses) of Subsidiaries$118,910  $65,327  $(2,793) 
General & Administrative Costs, net of tax (A)(8,859) (29,727) (12,031) 
Interest Charges, net of tax (B)(32,862) (17,697) —  
Impact of Tax Adjustments (C)—  —  11,420  
Income (Loss) From Continuing Operations$77,189  $17,903  $(3,404) 
  Year Ended December 31, 2017 Year Ended December 31, 2016 Year Ended December 31, 2015
Equity in (Losses) Earnings of Subsidiaries $(2,793) $119,061
 $105,610
Acquisition Costs, net of tax (A) (12,031) —
 —
Impact of Tax Adjustments (B) 11,420
 —
 —
(Loss) Income From Continuing Operations $(3,404) $119,061
 $105,610


(A) Represents costs incurred on the agreement to acquire the assets of Elizabethtown GasETG and Elkton Gas (see Note 1ELK, including legal, consulting and other professional services, including costs incurred to exit the consolidated financial statements).TSA. Also includes costs associated the implementation of the ERIP in 2018, and other general & administrative costs.


(B) Represents interest charges incurred, net of tax, primarily on debt.

(C) Represents one-time tax adjustments, most notably for Tax Reform, which was signed into law in December 2017. See Note 4 to the consolidated financial statements.Reform.

187
South Jersey Industries, Inc.
Part IV


SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(In Thousands)
          
Col. A Col. B Col. C Col. D Col. ECol. ACol. BCol. CCol. DCol. E
            
   Additions      Additions
            
Classification Balance at Beginning of Period Charged to Costs and Expenses Charged to Other Accounts - Describe (a) Deductions - Describe (b) Balance at End of PeriodClassificationBalance at Beginning of PeriodCharged to Costs and ExpensesAcquisition Adjustments (a)Charged to Other Accounts - Describe (b)Deductions - Describe (c)Balance at End of Period
          
Provision for Uncollectible          Provision for Uncollectible
Accounts for the Year Ended          Accounts for the Year Ended
December 31, 2017 $12,744
 $6,949
 $(394) $5,311
 $13,988
December 31, 2019December 31, 2019$18,842  $10,432  —  $(292) $9,153  $19,829  
  
  
  
  
  
                
Provision for Uncollectible  
  
  
  
  
Provision for Uncollectible               
Accounts for the Year Ended  
  
  
  
  
Accounts for the Year Ended               
December 31, 2016 $10,252
 $6,907
 $(47) $4,368
 $12,744
December 31, 2018December 31, 2018$13,988  $7,977  6,579  $(466) $9,236  $18,842  
          
Provision for Uncollectible          Provision for Uncollectible
Accounts for the Year Ended          Accounts for the Year Ended
December 31, 2015 $7,910
 $14,730
 $(79) $12,309
 $10,252
December 31, 2017December 31, 2017$12,744  $6,949  —  $(394) $5,311  $13,988  
 



SOUTH JERSEY GAS COMPANY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(In Thousands)


Col. ACol. BCol. CCol. DCol. E
  Additions  
ClassificationBalance at Beginning of Period
Charged to Costs and
Expenses
Charged to Other Accounts -
Describe (b)
Deductions -
Describe (c)
Balance at End
of Period
Provision for Uncollectible     
Accounts for the Year Ended     
December 31, 2019$13,643  $7,193  $(292) $6,512  $14,032  
Provision for Uncollectible     
Accounts for the Year Ended     
December 31, 2018$13,799  $7,997  $(466) $7,687  $13,643  
Provision for Uncollectible     
Accounts for the Year Ended     
December 31, 2017$12,570  $6,949  $(394) $5,326  $13,799  
Col. ACol. B Col. C Col. D Col. E
   Additions    
ClassificationBalance at Beginning of Period 
Charged to Costs and
Expenses
 
Charged to Other Accounts -
Describe (a)
 
Deductions -
Describe (b)
 
Balance at End
of Period
Provision for Uncollectible         
Accounts for the Year Ended         
December 31, 2017$12,570
 $6,949
 $(394) $5,326
 $13,799
Provision for Uncollectible         
Accounts for the Year Ended         
December 31, 2016$9,778
 $6,993
 $(47) $4,154
 $12,570
Provision for Uncollectible         
Accounts for the Year Ended         
December 31, 2015$6,601
 $14,689
 $(235) $11,277
 $9,778


(a) Additions related to the Acquisition. See Note 20.
(b) Recoveries of accounts previously written off and minor adjustments.
(b)(c) Uncollectible accounts written off.


164188